Facts of the Case

Search and seizure operations under Section 132 were conducted on 05.01.2009 in the cases of the Taneja–Puri Group. During the same period, survey proceedings under Section 133A were also carried out at the premises of the respondent, M/s TDI Infrastructure Ltd.

For Assessment Years 2007–08 and 2008–09, notices under Section 153C were issued to the respondent. In response, the respondent filed returns declaring income which was set off against brought forward business losses. The Assessing Officer passed assessment orders under Section 153C read with Section 143(3) making multiple additions including disallowance of brokerage and interest claimed as fresh deductions, additions based on loose papers and diaries relating to land transactions, and denial of deduction under Section 80-IB(10) on the ground that certain residential units exceeded the prescribed built-up area.

The Commissioner of Income Tax (Appeals) partly confirmed and partly deleted the additions. On further appeal, the Income Tax Appellate Tribunal by a common order dated 11.05.2020 deleted the additions holding that they were beyond the scope of Section 153C as they were not based on incriminating material belonging to the assessee found during search.

Aggrieved, the Revenue filed appeals before the Delhi High Court.

Issues Involved

Whether the Assessing Officer was justified in assuming jurisdiction under Section 153C and making additions for completed assessment years in the absence of incriminating material belonging to the assessee recorded in the satisfaction note, and whether survey material could be relied upon for making additions under Section 153C.

Petitioner’s Arguments (Revenue)

The Revenue contended that incriminating material relating to the respondent was unearthed during search and survey operations and that the ITAT erred in holding that the additions were based solely on survey material. It was argued that the disallowance of brokerage and interest arose only because the assessee made a fresh claim in the return filed under Section 153C and therefore fell within the scope of search assessment.

Respondent’s Arguments (Assessee)

The respondent argued that none of the additions were based on any incriminating material belonging to it and recorded in the satisfaction note prior to assuming jurisdiction under Section 153C. It was contended that the additions were either based on survey material or on issues already examined in regular assessment proceedings, which could not be revisited under Section 153C for completed assessment years.

Court Order / Findings

The Delhi High Court examined the statutory framework of Section 153C as it stood prior to its amendment with effect from 01.06.2015 and reiterated that the jurisdictional requirement mandates that incriminating material seized during search must belong to the assessee.

Relying on binding precedents including CIT v. Kabul Chawla, CIT v. RRJ Securities Ltd., and PCIT v. Dreamcity Buildwell (P) Ltd., the Court held that completed assessments can be interfered with under Section 153C only on the basis of incriminating material belonging to the assessee and unearthed during search.

The Court noted that the ITAT had recorded a categorical finding that none of the additions were based on any seized incriminating material belonging to the respondent or recorded in the satisfaction note. The additions were instead founded on survey material or on issues unrelated to any seized documents. The Court held that survey material cannot expand the scope of proceedings under Section 153C.

Important Clarification

The Court clarified that prior to 01.06.2015, Section 153C required strict satisfaction that seized material “belongs to” the assessee. Material merely “pertaining to” or “relating to” the assessee, or material arising from survey proceedings, is insufficient to assume jurisdiction or make additions under Section 153C for completed assessments.

Final Outcome

Both appeals filed by the Revenue were dismissed. The Delhi High Court upheld the order of the ITAT and held that the Assessing Officer had wrongly assumed jurisdiction under Section 153C and that additions made without incriminating material belonging to the assessee were unsustainable in law.

 

Link to download the order - https://www.mytaxexpert.co.in/uploads/1769850919_PR.COMMISSIONEROFINCOMETAXCENTRAL3VsMSTDIINFRASTRUCTURELTD.pdf

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