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Income Tax Appellate Tribunal, DELHI “E” BENCH: NEW DELHI
Before: SHRI SUDHIR KUMAR & SHRI MANISH AGARWAL
ORDER
PER MANISH AGARWAL, AM :
1. The captioned appeals are filed by assessee against the separate orders, both dated 17.03.2025 by Ld. Commissioner of Income Tax (A)-30, NewDelhi [“Ld. CIT(A)”] in Appeal No. 30/10352/2017-18 and in Appeal No. 30/10590/2018-19 passed u/s 250 of the Income Tax Act, 1961 [“the Act”] arising out of assessment orders, both dated 30.03.2023 passed u/s 153C r.w.s 143(3) of the Act pertaining to Assessment Years 2018-19 & 2019- 20 respectively.
As both the captioned appeals filed by the assessee have similar issues which are inter-linked, inter-connected and this fact has been admitted by both the parties during the course of hearing before us, therefore, both the appeals filed by the assessee are decided by a common order.
First, we take the assessee’s appeal in for AY 2018-19.
[Assessment Year : 2018-19] 4. Brief facts of the case are that the assessee e-filed her return of income on 30.10.2018, declaring total income of INR 10,35,380/-. A search and seizure operation was carried out at various premises of Shri Kuldeep Bishnoi Group and its associates on 23.07.2019. Various documents/books of accounts etc. were found and seized and statements of various persons were recorded. It was found that some incriminating material found and seized contained some entries related to the assessee. Subsequently, satisfactions were recorded by AO of the searched person as well as AO of the person other than the searched person and, notice u/s 153C was issued on 07.01.2022. In compliance to the notice issued u/s 153C, the assessee filed return on 02.02.2022, declaring total income of INR 10,35,380/-. Thereafter, notice u/s 143(2) alongwith detailed questionnaire was issued followed by various notices issued from time to time to the assessee. After considering the submissions made and material furnished by the assessee, the AO assessed the income of the assessee at INR 20,85,380/- vide assessment order dated 30.03.2023 passed u/s 153C r.w.s. 143(3) of the Act.
Against the said order, assessee filed an appeal before Ld. CIT(A) who vide order dated 17.03.2025, dismissed the appeal of the assessee.
Aggrieved by the order of Ld. CIT(A), assessee is in appeal before the Tribunal by taking following grounds of appeal:-
A. “Because the impugned order has erred on facts and circumstances of the case and prevailing law by failing to appreciate that the assessment order passed under S. 153C of the Act, was in excess of jurisdiction as the Respondent did not demonstrate that the dairy of Late Sh. Sukumar Poria 'pertains' to the Appellant. B. Because the impugned order is contrary to the decision of Hon'ble Supreme Court in the case of Central Bureau of Investigation v. V.C. Shukla and Ors. MANU/SC/0168/1998. The Hon'ble Supreme Court has laid down that 'entries' can be considered as a piece of evidence only when they satisfy the test of relevancy, i.e. that the entries have been made in a book of account, maintained as per accounting principles and regularly kept in the course of business. In the present case, neither the Respondent has attempted nor demonstrated that diary notings represents the books of accounts of Sh. Kuldeep Bishnoi or the present Appellant. On the contrary, it is the Revenue's own case that the diary notings belonged to or pertained to Late Sh. Sukumar Poria. C. Because the impugned order has erred on facts and circumstances of the case and prevailing law by failing to appreciate the Assessing Officer has not established any link between Late Sh. Sukumar Poria and Sh. Kuldeep Bishnoi, the person at whose behest the alleged cash payment was made to the Appellant. In this regard, it is submitted that is the Revenue's own case that the payments in question were in relation to Sh. Kuldeep Bishnoi's house at 135, Golf Links. D. Because the impugned order has grossly erred in not according any significance to the facts which emerged during the assessment proceedings, especially during the cross-examination of Sh. Kuldeep Bishnoi that he did not make any cash payment to the Appellant. E. Because impugned order's finding that the 'retraction' of Sh. Kuldeep Bishnoi that he did not make any cash payment to the Appellant was without any 'corroboration' is grossly incorrect and contrary to prevailing law. In this regard, it is submitted that there is no mandate of law which requires a retraction to be corroborated unlike the burden cast on the Revenue to obtain corroboration to alleged incriminating statements. Further, the impugned order ignored the significant fact that that during the course of Sh. Bishnoi's earlier statement recorded under S. 132(4) of the Act, the actual contents of the seized dairy were never confronted to him. F. Because the impugned order and the assessment order dated 30.03.2023 had grossly erred in making an addition of Rs. 10,50,000/-as unaccounted business income for the relevant period on the basis of alleged cash receipt of Rs.15,00,000/- without recording any findings on the manner of computation of gross profit. G. Because the impugned order is contrary to settled law that additions under fiscal statutes cannot be made entirely on the basis of statements. The following judicial precedents unequivocally support the said proposition: a. Shalimar Rubber Industries v. Collector of Central excise, Cochin 2002 taxmann.com 172 (SC); b. Commissioner of Central Excise v. Vikram Cement (P.) Ltd. 2014] 52 taxmann.com 133 (Allahabad) c. Continental Cement Company v. Union of India [2014] 49 taxmann.com 374 (Allahabad) d. Commissioner of Income-tax v. Harjeev Aggarwal [2016] 70 taxmann.com 95 (Delhi) e. Vinod Solanki v. Union of India and Anr. (2008) 16 SCC 537 f. Manak Kala v. Union of India and Ors 269(2020) DLT 105 H. Because the impugned addition is also contrary to the test of human probabilities and therefore ought to be quashed. The impugned order ignores that the person allegedly receiving the payment, i.e. the Appellant and the person at whose behest the payment was made, i.e. Sh. Kuldeep Bishnoi, have denied any such payment.
Because the Assessing Officer could not have made the addition on account of unaccounted business income in the facts of the present case and prevailing law, when no defect was pointed out in the books of account maintained by the Appellant for the relevant period. J. Because the initiation of penalty proceedings under S. 271DA of the Act is not warranted in the facts of the present case. K. Because the impugned order is a nullity for being in contravention of principles of natural justice.
L. The Appellant craves leave to add/amend additional grounds of appeal during hearing. The present appeal is bonafide and in the interest of justice.”
Before us, Ld.AR for the assessee submits that Ground of appeal No.(A) is with respect to the initiation of proceedings u/s 153C of the Act in the case of the assessee on the basis of the documents found and seized during the course of search on third person. Ld.AR further submits that in the instant case, a search and seizure action was carried out on 23.07.2019 at the various premises of Shri Kuldeep Bishnoi Gorup and its associates and during the course of search, certain documents were found and seized. Based on the entries found noted in one diary, a satisfaction note is recoded that the documents pertained to the assessee and contained entries related to the assessee and proceedings u/s 153C were initiated in the case of the assessee and additions were made. Ld.AR submits that sole basis of the addition is so-called documents in the shape of diary which was found and seized from the possession of Late Shri Sukumar Poria (now deceased) containing certain entries which are appearing at page 4 of the assessment order. Ld.AR submits that as per the said documents, the entries written with “d” were treated as cash payment received by the assessee and addition was made on this account. Ld.AR submits that in the satisfaction note recorded, it is not mentioned by the AO that these documents contained the entries which “have bearing on the total income of the assessee”. In the satisfaction note record, AO has observed that these documents are pertained to the assessee however, has failed to record his satisfaction as provided u/s 153C of the Act that paper should “have bearing on the income determined of the assessee”. In this regard, reliance is placed on the judgement of Hon’ble Jurisdictional High Court in the case of Saksham Commodities Ltd reported in (2024) 161 Taxmann.com 485 (Delhi) wherein the Hon’ble Court has held as under:-
“In terms of the Second Proviso to Section 153A, all assessment or reassessment proceedings relating to the six AYs' or the "relevant assessment year" pending on the date of search are statutorily envisaged to abate. Abatement is envisioned to be an inevitable consequence of the initiation of action under Section 153A.Neither issuance of notice nor abatement are predicated upon a formation of opinion by the AO of the searched person that the material is likely to impact the total income of that assessee. However, the spectre of abatement insofar as the "other person" is concerned would arise only after the jurisdictional AO has formed the requisite satisfaction of the material having "a bearing on the determination of the total income of such other person" and having formed the opinion that proceedings under Section 153C are liable to be initiated. It would be pertinent to bear in mind that Kabul Chawla was a decision rendered in the context of Section 153A.It was in the aforesaid backdrop that the Court significantly observed that once a search takes place under Section 132 of the Act, notice under Section 153A(1) would mandatorily issue. The abatement of assessment and reassessment pending on that date would, in the case of a Section 153A assessment, be a preordained consequence. However, and in light of what has been observed hereinabove, it is apparent that Section 153Cconstructs a subtle and yet significant distinction insofar as the question of commencement of proceedings or assumption of jurisdiction is concerned.
That takes us to the principal question and which pertains to the nature of the incriminating material that may be obtained and the years forming part of the block which would merit being thrown open. Regard must be had to the fact that while Section 153C enables and empowers the jurisdictional AO to commence assessment or reassessment for a block of six AYs' or the "relevant assessment year", that action is founded on satisfaction being reached that the books of accounts, documents or assets seized "have a bearing on the determination of the total income of such other person". We in this regard bear in mind the well settled distinction which the law recognizes between the existence of power and the exercise thereof. Section 153Cenables and empowers the jurisdictional AO to assess or reassess the six AYs' or the "relevant assessment year". The Act thus sanctions and confers an authority upon the AO to exercise the power placed in its hands for up to a maximum of ten AYs'. Despite the conferral of that power, the question which would remain is whether the facts and circumstances of a particular case warrant or justify the invocation of that power. It is the aforesaid aspect which bids us to reiterate the distinction between the existence and exercise of power.
What we seek to emphasise is that merely because Section 153C confers jurisdiction upon the AO to commence an exercise of assessment or reassessment for the block of years which are mentioned in that provision, the same alone would not be sufficient to justify steps in that direction being taken, unless the incriminating material so found is likely to have an impact on the total income of a particular AY forming part of the six AYs' immediately preceding the AY pertaining to the search year or for the "relevant assessment year".
Ultimately Section 153C is concerned with books, documents or articles seized in the course of a search and which are found to have the potential to impact or have a bearing on an assessment which may be undergoing or which may have been completed. The words "have a bearing on the determination of the total income of such other person" as appearing in Section 153C would necessarily have to be conferred pre-eminence. Therefore, and unless the AO is satisfied that the material gathered could potentially impact the determination of total income, it would be unjustified in mechanically reopening or assessing all over again all the ten AYs' that could possibly form part of the block of ten years.
The decisions which hold that an assessment is liable to be revised only if incriminating material be found, even if rendered in the context of Section 153A, would clearly govern the question that stands posited even in the context of Section 153C. It would be relevant to recall that the Division Bench in Kabul Chawla had observed that in the absence of any incriminating material, a completed assessment may be reiterated and the abated assessment or reassessment be concluded. The importance of incriminating material was further underlined in Kabul Chawla with the Court observing that completed assessments could be interfered with, only if some incriminating material were unearthed. This aspect came to be reiterated in RRJ Securities when the Court held that it would be impermissible to either reopen or reassess a completed assessment which may not be impacted by the material gathered in the course of the search and which may have no plausible nexus. The aforesaid position also comes to the fore when one reads para 17 of ARN Infrastructure and which annulled an action aimed at reopening assessments for years to which the incriminating document which was found did not relate.
Sinhgad Technical Education Society also constitutes a binding precedent in respect of the aforesaid proposition as would be evident from the Supreme Court noticing that the material disclosed pertained only to AY 2004-05 or thereafter and that consequently the Section 153C action initiated for AYs' 2000-01 to 2003-04would not sustain. It was this position in law as enunciated in that decision which came to be reiterated by our Court in Index Securities.
In any case, Abhisar Buildwell, in our considered opinion, is a decision which conclusively lays to rest any doubt that could have been possibly harboured. The Supreme Court in unequivocal terms held that absent incriminating material, the AO would not be justified in seeking to assess or reassess completed assessments. Though the aforesaid observations were rendered in the context of completed assessments, the same position would prevail when it comes to assessments which abate pursuant to the issuance of a notice under Section153C. Here too, the AO would have to firstly identify the AYs' to which the material gathered in the course of the search may relate and consequently it would only be those assessments which would face the spectre of abatement. The additions here too would have to be based on material that may have been unearthed in the course of the search or on the basis of material requisitioned. The statute thus creates a persistent and enduring connect between the material discovered and the assessment that may be ultimately made. The provision while speaking of AYs' falling within the block of six AYs' or for that matter all years forming part of the block of ten AYs', appears to have been put in place to cover all possible contingencies. The aforesaid provisions clearly appear to have been incorporated and made applicable both with respect to Section 153A as well as Section 153C ex abundanti cautela. Which however takes us back to what had been observed earlier, namely, the existence of the power being merely enabling as opposed to a statutory compulsion or an inevitable consequence which was advocated by the respondents.
Take for instance a case where the material gathered in the search is contemplated to have an adverse impact on the declarations and disclosures made by an assessee pertaining only to AYs' 2016-17 and 2017-18.What we seek to emphasise is that pending assessments for those two years could validly form subject matter of action under Section 153C and pending assessments in that respect would surely abate. However, that by itself would not be sufficient to either reopen or issue notices in respect of AYs' prior to or those falling after those two AYs' and which may otherwise fall within the maximum block period of ten years merely because the statute empowers the AO to do so. Unless the material gathered and recovered is found to have relevancy to the AY which is sought to be subjected to action under Section 153C, it would be legally impermissible for the respondents to invoke those provisions. Consequently, the AO would be bound to ascertain and identify the year to which the material recovered relates. The years which could be then subjected to action under Section 153C would have to necessarily be those in respect of which the assessment is likely to be influenced or impacted by the material discovered. Section 153C neither mandates nor envisages a mechanical or an enblanc exercise of power, or to put it differently, one which is uninformed by a consideration of the factors indicated above.
We also bear in mind the pertinent observations made in RRJ Securities when the Court held that merely because an article or thing may have been recovered in the course of a search would not mean that concluded assessments have to "necessarily" be reopened under Section 153C and that those assessments are not liable to be revised unless the material obtained have a bearing on the determination of the total income. This aspect was again emphasised in para 38 of RRJ Securities with the Court laying stress on the existence of material that may be reflective of undisclosed income being of vital importance. All the aforenoted judgments thus reinforce the requirement of incriminating material having an ineradicable link to the estimation of income fora particular AY.
It becomes pertinent to note that both Sections 153A and 153C require the assessee upon being placed on notice to furnish ROIs' for the six AYs' or the "relevant assessment year". All that the two provisions mandate is that notwithstanding the submission of those ROIs', the AO would frame one assessment order in respect of each of the years which were made subject matter of the notice and which would deal with both disclosed and undisclosed income. This too reinforces our view that Section 153C would apply only to such AYs' where the jurisdictional AO is satisfied and has incriminating material for those AYs' and which may be concerned with disclosed and undisclosed income.
The aforesaid position stands further fortified from a reading of the First Proviso to Section 153A and which speaks of the power of the AO to assess or reassess the total income in respect of "each assessment year". The aforesaid phraseology stands replicated in Section 153B(1)(a) which again alludes to "each assessment year" falling within the six AYs or the "relevant assessment year". The aforesaid language is then reiterated in Section 153D and which prescribes that no order of assessment or reassessment shall be passed by an AO in respect of "each assessment year" referred to in Section 153A or 153B of the Act, except with the prior approval of the Joint Commissioner. We note that once the aforesaid principles are borne in mind, there would exist no discernible distinction between abated and completed assessments. This, since in both situations, the AO would be bound to base its decision to abate or reopen on material that is likely to impact the assessment of the total income for a particular AY. In case of assessment proceedings which are ongoing on the date when the AO proceeds to draw its satisfaction and in respect of which no incriminating material has been discovered, there would exist no justification to initiate proceedings under Section 153C.
It would be pertinent to recall that Section 153C essentially seeks to merge ongoing assessments with a search assessment which may be triggered by the discovery of material obtained in a search and which was the statutory procedure which prevailed in terms of the provisions contained in Chapter XIV B. However, and in cases where on facts it is found that the material gathered is unlikely to have any impact on the computation of total income for a particular year, there would exist no justification to invoke the powers conferred by Section 153C.
Before concluding, we also deem it imperative to briefly notice certain aspects which emerge from a reading of the Satisfaction Notes themselves. As is manifest from a reading of the Satisfaction Note drawn by the jurisdictional AO of the assessee in W.P. (C) 1459/2024, after noticing the material which was recovered during the search and related to FYs' 2009-10, 2010- 11 and 2011-12 [corresponding AYs' thus being AYs'2010-11, 2011-12 and 2012-13], it has proceeded to observe that the assessments which were liable to abate orbe reopened would be AYs' 2010-11 to 2020-21. A similar note appears in W.P. (C)1117/2024. Here again, after referring to the material pertaining to FY 2009-10 [and thus relating to AY 2010-11], the AO proceeded to seek approval for initiating action under Section 153C in respect of AYs' 2010-11 up to 2020-21.
A reading of the aforesaid Satisfaction Notes would establish that jurisdictional AOs' appear to have proceeded on the premise that the moment incriminating material is unearthed in respect of a particular AY, they would have the jurisdiction and authority to invoke Section 153C in respect of all the assessment years which could otherwise form part of the "relevant assessment year" as defined in Section 153A. In our considered opinion, the aforesaid understanding of Section 153C is clearly erroneous and unsustainable. As explained hereinabove, the discovery of material likely to implicate the assessee and impact the assessment of total income for a particular AY is not intended to set off a chain reaction or have a waterfall effect on all AYs' which could form part of the "relevant assessment year". This, more so since none of the Satisfaction Notes record any reasons of how that material is likely to materially influence the computation of income for those AYs'.
Hypothetically speaking, it may be possible for the material recovered in the course of a search having the potential or the probability of constituting incriminating material for more than one assessment year. However, even if such a situation were assumed to arise, it would be incumbent upon the AO to duly record reasons in support of such a conclusion. The Satisfaction Notes would thus have to evidence a formation of opinion that the material is likely to be incriminating for more than a singular assessment year and thus warranting the drawl of Section 153C proceedings for years in addition to those to which the material may be directly relatable. G. CONCLUSIONS 63. On an overall consideration of the structure of Sections 153A and 153C, we thus find that a reopening or abatement would be triggered only upon the discovery of material which is likely to "have a bearing on the determination of the total income" and would have to be examined bearing in mind the AYs' which are likely to be impacted. It would thus be incorrect to either interpret or construe Section 153C as envisaging incriminating material pertaining to a particular AY having a cascading effect and which would warrant a mechanical and inevitable assessment or reassessment for the entire block of the "relevant assessment year".
In our considered view, abatement of the six AYs' or the "relevant assessment year" under Section 153Cwould follow the formation of opinion and satisfaction being reached that the material received is likely to impact the computation of income for a particular AY or AYs' that may form part of the block of ten AYs'. Abatement would be triggered by the formation of that opinion rather than the other way around. This, in light of the discernibly distinguishable statutory regime underlying Sections 153A and 153C as explained above. While in the case of the former, a notice would inevitably be issued the moment a search is undertaken or documents requisitioned, whereas in the case of the latter, the proceedings would be liable to be commenced only upon the AO having formed the opinion that the material gathered is likely to inculpate the assessee. While in the case of a Section 153A assessment, the issue of whether additions are liable to be made based upon the material recovered is an aspect which would merit consideration in the course of the assessment proceedings, under Section 153C, the AO would have to be prima facie satisfied that the documents, data or asset recovered is likely to "have a bearing on the determination of the total income". It is only once an opinion in that regard is formed that the AO would be legally justified in issuing a notice under that provision and which in turn would culminate in the abatement of pending assessments or reassessments as the case maybe.
We would thus recognize the flow of events contemplated under Section 153C being firstly the receipt of books, accounts, documents or assets by the jurisdictional AO, an evaluation and examination of their contents and an assessment of the potential impact that they may have on the total income for the six AYs' immediately preceding the AY pertaining to the year of search and the "relevant assessment year". It is only once the AO of the non-searched entity is satisfied that the material coming into its possession is likely to "have a bearing on the determination of the total income" that a notice under Section 153C would be issued. Abatement would thus be a necessary corollary of that notice. However, both the issuance of notice as well as abatement would have to necessarily be preceded by the satisfaction spoken of above being reached by the jurisdictional AO of the non-searched entity.
Therefore, and in our opinion, abatement of the six AYs' or the "relevant assessment year" would follow the formation of that opinion and satisfaction in that respect being reached.
On an overall consideration of the aforesaid, we come to the firm conclusion that the "incriminating material" which is spoken of would have to be identified with respect to the AY to which it relates or may belikely to impact before the initiation of proceedings under Section 153C of the Act. A material, document or asset recovered in the course of a search or on the basis of a requisition made would justify abatement of only those pending assessments or reopening of such concluded assessments to which alone it relates or is likely to have a bearing on the estimation of income. The mere existence of a power to assess or reassess the six AYs' immediately preceding the AY corresponding to the year of search or the "relevant assessment year" would not justify a sweeping or indiscriminate invocation of Section 153C.
The jurisdictional AO would have to firstly be satisfied that the material received is likely to have a bearing on or impact the total income of years or years which may form part of the block of six or ten AYs' and thereafter proceed to place the assessee on notice under Section 153C. The power to undertake such an assessment would stand confined to those years to which the material may relate or is likely to influence. Absent any material that may either cast a doubt on the estimation of total income for a particular year or years, the AO would not be justified in invoking its powers conferred by Section 153C. It would only beconsequent to such satisfaction being reached that a notice would be liable to be issued and thus resulting in the abatement of pending proceedings and reopening of concluded assessments. H. OPERATIVE DIRECTIONS 69. When tested in light of the aforesaid principles, we find that except for a few exceptions which were noticed in the introductory parts of this judgment, the writ petitions forming part of this batch, impugn the invocation of Section 153C in respect of AYs' for which no incriminating material had been gathered or obtained. The Satisfaction Notes also fail to record any reasons as to how the material discovered and pertaining to a particular AY is likely to "have a bearing on the determination of the total income" for the year which is sought to be abated or reopened in terms of the impugned notices. The respondents have erroneously proceeded on the assumption that the moment any material is recovered in the course of a search or on the basis of a requisition made, they become empowered in law to assess or reassess all the six AYs' years immediately preceding the assessment correlatable to the search year or the "relevant assessment year" as defined in terms of Explanation 1 of Section 153A. The said approach is clearly unsustainable and contrary to the consistent line struck by the precedents noticed above.
The Hon’ble Jurisdictional Delhi High Court in the case of Saksham Commodities (supra) in clear terms held that for initiation of proceedings u/s 153C of the Act, the AO should satisfy that books of accounts or documents or assets seized or requisition must be pertained to the assessee and the entries contained therein must “have bearing on the determination of the total income of such other person”.
As observed above, in the instant case, AO has recorded satisfaction that the entries belonged to the assessee and not pertained to the assessee and further has not recorded the satisfaction that such entries “have the bearing on the determination of the income of the assessee”. Therefore, by respectfully following the judgement of Hon’ble Delhi High Court in the case of Saksham Commodities (supra), we hold that satisfaction recorded for initiation of the proceedings u/s 153C of the Act is not a valid satisfaction. Accordingly, we allow Ground No.(A) raised by the assessee and quashed the proceedings initiated u/s 153C based on such invalid satisfaction and the also quashed the consequent order passed u/s 153 of the Act.
Since we have allowed the legal ground of appeal taken by the assessee therefore, the remaining Grounds of appeal require no adjudication.
In the result, appeal of the assessee is allowed.
In this year also, facts are similar where same diary has been used for initiating the proceedings u/s 153C of the Act as was relied upon for initiating the proceedings for AY 2018-19 in wherein we have already hold that the satisfaction recorded for initiation of proceedings u/s 153C is invalid.
Before us, both the parties have agreed that the facts and the allegations made are identical in both the assessment years, thus the observations made in (AY 2018-19) are Mutatis Mutandis applicable to the facts of the present case and accordingly, by following the above-mentioned observations, we allow Ground of appeal No.(A) and quashed the proceedings-initiated u/s 153C of the Act. Ground of appeal No.(A) is accordingly allowed.
The other Grounds of appeal require no adjudication.
In the result, appeal of the assessee is allowed.