Delhi High Court: The present writ petitions were filed assailing the notices issued under Section 153-C of the Income Tax Act, 1961 (‘the Act’). The Division Bench of Yashwant Varma* and Purushaindra Kumar Kaurav, JJ., opined that the discovery of material likely to implicate the assessee and impact the assessment of total income for a particular AY was not intended to set off a chain reaction or a waterfall effect on all AYs’ which could form part of the “relevant assessment year”. The Court opined that mere existence of a power to assess or reassess the six Assessment Years (‘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 153-C of the Act. The jurisdictional Assessing Officer (‘AO’) would have to firstly be satisfied that the material received was 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 153-C of the Act.
The Court opined that except for a few exceptions, the writ petitions impugned the invocation of Section 153-C of the Act in respect of AYs’ for which no incriminating material had been gathered or obtained. The Satisfaction Notes also failed to record any reasons as to how the material discovered was likely to “have a bearing on the determination of the total income” for the year which was sought to be abated or reopened in terms of the impugned notices.
Background
Petitioner filed its Return of Income (‘ROI’) for the AYs’ 2015-2016, under Section 139(1) of the Act on 24-9-2015. On 18-10-2019, a search and seizure operation were carried out in the case of the Alankit Group of Companies. Thereafter, under Section 153-C of the Act, a notice dated 11-7-2022 was issued by respondents requiring petitioner to submit its ROI for AY 2015-2016. The issuance of the notice was preceded by the drawl of a Satisfaction Note by the jurisdictional AO, which referred to incriminating material found during the search and pertaining to Financial Years (‘FYs’) 2009-2010, 2010-2011 and 2011-2012. Since the corresponding AYs’ for the aforenoted period would be AYs’ 2010-2011, 2011-2012 and 2012-2013, petitioner asserted that the invocation of Section 153C for AY 2015-2016 was wholly arbitrary and legally unsustainable.
Petitioners submitted that the power to assess or to reassess conferred by virtue of Section 153-C of the Act was premised on the AO of the non-searched entity being satisfied on a perusal of the material that the same would “have a bearing on the determination of the total income” of the “other person” for six AYs’ immediately preceding the AY relevant to the FY in which the search was undertaken or documents requisitioned, as well as for the “relevant assessment year” as defined in Section 153-A of the Act. It was further submitted that merely because incriminating material might had been discovered and which would pertain to a particular AY, the same would not constitute sufficient basis for initiation of assessment or reassessment proceedings in respect of the six AYs’ preceding the year of search or the entire block comprised in the “relevant assessment year” as defined by Explanation 1 to Section 153-A of the Act.
Analysis, Law, and Decision
1. Distinction between Sections 153-A and 153-C
The Court opined before commencement of action under Section 153-C of the Act, the AO was obliged to be satisfied that the material so received would “have a bearing on the determination of the total income of such other person”. This was an aspect of significance and constituted a fundamental point of distinction between Sections 153-A and 153-C of the Act.
The Court opined that prior to the promulgation of the amendments in the provisions, the AO of the non-searched party was not obliged to form an opinion that the material received by it was likely to impact the estimation of income of that person. Although this prerequisite was incorporated in Section 153-C of the Act, no such corresponding precondition was included in Section 153A of the Act. The Court opined that the legislature clearly intended both Section 153-A and 153-C of the Act to form part of a cohesive scheme and to be complementary to each other. However, the aspects of satisfaction and of the material likely to implicate or influence were not added in Section 153A of the Act.
The Court opined that the usage of the expression “have a bearing” would necessarily lead to conclusion that the mere discovery of books, documents or assets would not justify the initiation of proceedings. Upon receipt of that material, the jurisdictional AO must be satisfied that those were likely to have an impact on “the determination of the total income”. Thus, the Court concluded that the initiation of action under Section 153C of the Act would have to be founded on a formation of opinion by the jurisdictional AO that the material handed over and received pursuant to a search was likely to influence the “determination of the total income” and would be relevant for the assessment or reassessment.
2. Incriminating Material — Cascading Effect
The Court noted that the Act conferred an authority upon the AO to exercise the power placed in its hands for up to a maximum of ten AYs’. The Court emphasized that merely because Section 153C of the Act conferred jurisdiction upon the AO to commence assessment or reassessment for the block of years, the same would not be sufficient to justify steps in that direction being taken, unless the incriminating material was 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”.
The Court referred to the Satisfaction Notes drawn by the jurisdictional AO and observed that jurisdictional AOs appeared to have proceeded on the premise that the moment incriminating material was unearthed in respect of a particular AY, they would have the jurisdiction and authority to invoke Section 153C of the Act for all the assessment years. This understanding was clearly erroneous and unsustainable. The Court opined that the discovery of material likely to implicate the assessee and impact the assessment of total income for a particular AY was not intended to set off a chain reaction or a waterfall effect on all AYs’ which could form part of the “relevant assessment year”. Further, none of the Satisfaction Notes record any reasons of how that material was likely to materially influence the computation of income for those AYs’.
The Court opined that hypothetically, it might be possible for the material recovered to have the potential or the probability of constituting incriminating material for more than one assessment year, but still, it would be incumbent upon the AO to duly record reasons in support of such a conclusion.
3. Conclusion
The Court opined that reopening or abatement would be triggered only upon the discovery of material which was likely to “have a bearing on the determination of the total income” and would have to be examined bearing in mind the AYs’ which were likely to be impacted. The Court opined that “it would be incorrect to either interpret or construe Section 153C of the Act 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’.”
The Court opined that 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 of the Act. The jurisdictional AO would have to firstly be satisfied that the material received was 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 of the Act. The power to undertake such an assessment would be confined to those years to which the material might relate or was likely to influence. The Court opined that if there was not any material which would 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 of the Act.
4. Operative Directions
The Court opined that except for a few exceptions, the writ petitions impugned the invocation of Section 153-C of the Act in respect of AYs’ for which no incriminating material had been gathered or obtained. The Satisfaction Notes also failed to record any reasons as to how the material discovered was likely to “have a bearing on the determination of the total income” for the year which was sought to be abated or reopened in terms of the impugned notices.
The Court opined that there were two writ petitions forming part of this batch which needed to be examined and dealt with separately. With respect to W.P.(C) 3007 of 2023, assailing a notice under Section 153-C of the Act pertaining to AY 2013- 14. The Satisfaction Note alluded to incriminating material being recovered for FYs’ 2012-13 and 2013-14 and consequently the corresponding AYs’ were AY 2013-14 and 2014-15. Further, in W.P. (C) 3019 of 2023, the challenge was to a notice relating to AY 2014-15, and a Satisfaction Note there too was a clear reference to the material that was obtained and was co-relatable to the said AY.
Thus, the Court opined that two writ petitions would not be entitled to succeed on grounds which were urged on behalf of the writ petitioners and dismissed W.P.(C) 3007 of 2023 and W.P. (C) 3019 of 2023. Accordingly, the Court allowed the present writ petitions and quashed the impugned notices insofar as they pertained to AYs’ 2013-14, 2014-15, 2015-16, 2016-17, 2017-18, 2018- 19, 2019-20 and 2020-21.
[Saksham Commodities Ltd. v. CIT, 2024 SCC OnLine Del 2551, decided on 9-4-2024]
*Judgment authored by: Justice Yashwant Varma
Advocates who appeared in this case :
For the Petitioners: Salil Kapoor, Sumit Lalchandani, Ananya Kapoor, Tarun Chanana, Shivam Yadav, Vibhu Jain, Utkarsa Gupta, Amandeep Mehta and Sanat Kapoor, Advocates; Rohit Jain and Saksham Singhal, Advocates; Gautam Jain, Reeta Chaudhary and Manish Yadav, Advocates; Dr. Rakesh Gupta, Somil Agarwal, Dushyant Agrawal and Prateek Bhati, Advocates; Raghvendra Singh, Abhishek Gupta, Gyanendra Rathour and Vaibhav Kumar, Advocates; Ruchesh Sinha and Monalisa Maity, Advocates; Ved Jain, Nischay Kantoor, Soniya Dodeja and Animesh Tripathi, Advocates; Satyen Sethi and Arta Trana Panda, Advocates;
For the Respondents: Sunil Agarwal, Sr.SC with Shivansh B.Pandya, Jr.SC and Utkarsh Tiwari, Advocate; Sanjay Kumar, Sr. Standing Counsel along with Easha Kadian and Hemlata Rawat, Jr. Standing Counsels; Gaurav Gupta, SSC with Shivendra Singh and Puneet Singhal, JSCs, Mahima Garg and Deepika Goyal, Advocates; Abhishek Maratha, Sr.SC with Parth Semwal and Nupur Sharma, Advocates; Shlok Chandra, Senior SC with Madhavi Shukla, Jr. SC, Priya Sarkar, Jr.SC and Ujjwal Jain, Advocate; Kunal Sharma, Sr.SC, Zehra Khan, Jr.SC and Shubhendu Bhattacharyya, Advocate; Puneet Rai, Sr.SC with Ashivini Kumar and Rishabh Nangia, Advocates.
