Facts of the Case

The Revenue filed appeals under Section 260A of the Income-tax Act, 1961 challenging the common order dated 31.10.2018 passed by the Income Tax Appellate Tribunal, whereby proceedings initiated under Section 153C against the respondent assessee, Ridgeview Construction Pvt. Ltd., were quashed for Assessment Years 2004–05 and 2005–06.

A survey under Section 133A was conducted on 20.11.2007 at the business premises of one Mr. Suresh Kumar Gupta, a chartered accountant, who was alleged to be controlling several companies for providing accommodation entries. During a subsequent search, a provisional balance sheet of Ridgeview Construction Pvt. Ltd. as on 30.09.2005 was seized.

Based on the said provisional balance sheet and statements recorded during survey, the Assessing Officer initiated proceedings under Section 153C against Ridgeview Construction Pvt. Ltd. for AYs 2004–05 and 2005–06, alleging that the assessee had received accommodation entries.

Issues Involved

Whether proceedings under Section 153C could be validly initiated in respect of completed assessments for AYs 2004–05 and 2005–06 when the only seized material was a provisional balance sheet pertaining to a later period and did not constitute incriminating material relatable to the assessment years in question.

Appellant’s Arguments

The Revenue contended that the provisional balance sheet seized during the search bore the name of the assessee and therefore satisfied the requirement of material “belonging to” or “pertaining to” the assessee under Section 153C. It was argued that the amendment introduced by the Finance Act, 2015 inserting the expression “pertains to” was clarificatory and applicable even to searches conducted prior to the amendment.

The Revenue further argued that under the unamended Section 153C regime, recording of satisfaction by the Assessing Officer of the non-searched person was not mandatory and that the satisfaction of the Assessing Officer of the searched person was sufficient to initiate proceedings.

Respondent’s Arguments

The assessee contended that the provisional balance sheet related to a position as on 30.09.2005 and had no nexus with AYs 2004–05 and 2005–06. It was argued that the seized material did not constitute incriminating material for the relevant assessment years and therefore could not justify invocation of Section 153C.

The assessee relied on binding precedents including CIT vs. Sinhgad Technical Education Society, RRJ Securities Ltd., and SSP Aviation Ltd. to submit that completed assessments cannot be disturbed under Section 153C in absence of incriminating material pertaining to the relevant assessment years.

Court Order / Findings

The Delhi High Court held that the Tribunal was correct in quashing the proceedings under Section 153C. The Court observed that the provisional balance sheet seized during the search reflected a position as on 30.09.2005 and did not disclose any transactions or entries relatable to AYs 2004–05 and 2005–06. Ex facie, the document had no bearing on the assessment years sought to be reopened.

The Court reiterated that proceedings under Section 153C can be sustained only if the seized material is incriminating and pertains to the relevant assessment years. Relying on the Supreme Court decision in Sinhgad Technical Education Society and Delhi High Court judgments in RRJ Securities Ltd. and SSP Aviation Ltd., the Court held that mere seizure of a document bearing the name of the assessee does not automatically justify reopening of completed assessments.

The Court further clarified that even under the unamended Section 153C regime, initiation of proceedings was not intended to be mechanical and required formation of an opinion by the Assessing Officer of the non-searched person that the seized material was likely to have a bearing on the assessment for the relevant years.

Important Clarification

The Court clarified that the requirement of incriminating material pertaining to the relevant assessment years is a jurisdictional condition for invoking Section 153C. The insertion of the words “pertains to” by the Finance Act, 2015 did not dilute this foundational requirement and did not permit reopening of assessments in absence of material having a nexus with undisclosed income for the relevant years.

Final Outcome

The appeals filed by the Revenue were dismissed. The Delhi High Court upheld the order of the Income Tax Appellate Tribunal and held that proceedings initiated under Section 153C against Ridgeview Construction Pvt. Ltd. for Assessment Years 2004–05 and 2005–06 were unsustainable in law due to absence of incriminating material pertaining to the relevant assessment years. The matter was decided in favour of the assessee and against the Revenue.

Link to download the order - https://www.mytaxexpert.co.in/uploads/1770017039_PR.COMMISSIONEROFINCOMETAXCENTRAL3VsRIDGEVIEWCONSTRUCTIONPVT.LTD.pdf

 

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