Facts of the Case

The writ petitions formed part of a large batch challenging notices issued under Section 153C of the Income Tax Act, 1961 to assessees who were not subjected to the original search. The petitioners contended that no incriminating material relating to the specific assessment years proposed to be reopened had been discovered during the search conducted on another person. In several instances, satisfaction notes either did not refer to the relevant assessment years or were not furnished to the petitioners. Nevertheless, reassessment proceedings were initiated for multiple years within the statutory block period. As recorded in the judgment, the challenge was founded on the absence of material having a bearing on the determination of total income for the relevant years.

 Issues Involved

  1. Whether jurisdiction under Section 153C can be assumed against a non-searched person without incriminating material relating to the specific assessment year.
  2. Whether material pertaining to one assessment year can justify reopening of all preceding years within the block period.
  3. Whether absence or inadequacy of a satisfaction note invalidates the proceedings.
  4. Whether completed assessments can be reopened without material having a bearing on determination of income for that year.

Petitioner’s Arguments

The petitioners argued that initiation of proceedings under Section 153C was without jurisdiction since no seized material pertaining to the relevant assessment years existed. They contended that material relating to a particular year cannot justify reassessment of unrelated years. For completed assessments, reopening is permissible only where seized material specifically relates to that year and impacts determination of total income. In certain cases, satisfaction notes were either absent or failed to establish any nexus between the seized material and the assessment years concerned.

Respondent’s Arguments

The Revenue submitted that once incriminating material is discovered during a search and is considered relevant to a non-searched person, proceedings under Section 153C can be initiated for the prescribed block period. It was argued that the statutory framework permits assessment of multiple years and that the satisfaction recorded by the Assessing Officer was sufficient to confer jurisdiction.

Court Order / FINDINGS

The Delhi High Court held that jurisdiction under Section 153C is contingent upon the existence of incriminating material belonging to or relating to the non-searched person and specifically connected to the assessment year sought to be reopened. The Court emphasized that reassessment of completed assessments cannot be sustained unless the material discovered during the search has a direct bearing on the determination of total income for that particular year. It further clarified that discovery of material relating to one year does not justify reopening of other years within the block period. Consequently, proceedings initiated without year-specific incriminating material were held to be unsustainable in law.

Important Clarification

The Court clarified that the existence of incriminating material is a jurisdictional precondition for invoking Section 153C against a non-searched person. The Assessing Officer must demonstrate a clear nexus between the seized material and the relevant assessment year. In the absence of such material, reassessment proceedings for completed years cannot be lawfully initiated merely because a search was conducted in the case of another person.

Link to download the order – https://www.mytaxexpert.co.in/uploads/1772191372_NEELKANTHSTEELANDALLOYSVsASSTT.COMMISSIONEROFINCOMETAXCIRCLE491ORS..pdf 

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