Facts of the Case

Search and seizure operations under Section 132 of the Income Tax Act, 1961 were conducted on 21.07.2016 at the premises of the M3M Group.

During the search proceedings, certain documents were allegedly seized. Based on these documents, the Assessing Officer recorded a satisfaction note dated 25.09.2018 stating that the seized material contained information relating to M/s Aashrya Developers Pvt. Ltd.

Consequently, proceedings under Section 153C read with Section 153A were initiated against the assessee for Assessment Years 2011-12 to 2017-18, and assessments were framed for AYs 2011-12, 2012-13, 2013-14 and 2015-16.

The Assessing Officer also made an addition of ₹2,05,24,705 by applying a 1% commission rate on total bank credits and debits of ₹20,52,47,052, treating the assessee as an alleged accommodation entry provider.

The assessee challenged the jurisdiction under Section 153C as well as the additions made.

 

Issues Involved

  1. Whether the assessment proceedings initiated under Section 153C were valid in law when the satisfaction note was vague and non-specific.
  2. Whether Assessment Year 2011-12 fell outside the permissible limitation period for invoking Section 153C.
  3. Whether additions made without reference to any incriminating material seized during the search could be sustained.
  4. Whether the approval obtained under Section 153D and the assessments framed under Section 153A/143(3) were legally valid.

 

Petitioner’s Arguments (Assessee)

The assessee contended that the assumption of jurisdiction under Section 153C was invalid since:

  • No money, bullion, jewellery, or other valuable article belonging to the assessee was seized during the search.
  • No books of accounts or documents pertaining to the assessee were seized during the search.
  • The satisfaction note dated 25.09.2018 was vague and did not identify any incriminating material relating to specific assessment years.

The assessee further argued that:

  • For determining limitation under Section 153C, the relevant date is the date of recording the satisfaction note, which falls in AY 2018-19.
  • The six preceding years from AY 2018-19 would end with AY 2012-13, therefore AY 2011-12 falls outside the limitation period.
  • The Tribunal in DCIT vs Manglam Multiplex Pvt. Ltd. on identical facts had already held such proceedings to be invalid.

The assessee also contended that the additions were not based on any incriminating material seized during the search, and therefore could not be sustained.

 

Respondent’s Arguments (Revenue)

The Revenue relied upon the orders passed by the Assessing Officer and the Commissioner of Income Tax (Appeals).

It was argued that:

  • Documents seized during the search on the M3M Group contained information relating to the assessee.
  • Accordingly, the Assessing Officer was justified in initiating proceedings under Section 153C.
  • The additions made in the assessment were valid and correctly upheld by the first appellate authority.

Court Findings / Court Order

The ITAT examined the satisfaction note recorded under Section 153C and observed that it was vague, generic and non-descriptive.

The Tribunal noted that:

  • The satisfaction note referred to multiple assessment years collectively without identifying incriminating material for each specific assessment year.
  • The alleged undisclosed income was not identifiable with any particular assessment year.

Regarding AY 2011-12, the Tribunal held that:

  • The date of satisfaction note (25.09.2018) is relevant for computing limitation.
  • Therefore, the six preceding years would end with AY 2012-13.
  • Accordingly, AY 2011-12 falls outside the limitation period prescribed under Section 153C.

The Tribunal relied on the decision in DCIT vs Manglam Multiplex Pvt. Ltd., where identical satisfaction notes and facts were considered.

Thus, the Tribunal held that:

  • The assessment for AY 2011-12 was barred by limitation.
  • The satisfaction note suffered from serious legal infirmities.
  • The assumption of jurisdiction under Section 153C was invalid.

For AYs 2012-13, 2013-14 and 2015-16, the Tribunal observed that although they were within limitation, the satisfaction note still failed to identify incriminating material for each year, rendering the jurisdiction under Section 153C unsustainable.

Accordingly:

  • Appeals of the assessee were allowed.

 

Important Clarification by the Tribunal

  1. Jurisdiction under Section 153C can be assumed only when specific incriminating material relating to the assessee and to a particular assessment year is identified.
  2. A generic or consolidated satisfaction note covering multiple years without identifying seized material year-wise is legally unsustainable.
  3. Limitation for proceedings under Section 153C must be computed with reference to the date when the satisfaction note is recorded or when seized material is received by the Assessing Officer of the other person.
  4. Assessments framed without reference to incriminating material seized during the search cannot be sustained.

 Link to download the order -  https://itat.gov.in/public/files/upload/1735624870-DWRzt5-1-TO.pdf


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