Facts of the Case

The batch of writ petitions challenged notices issued under Section 153C of the Income Tax Act, 1961 to various assessees who were not the searched persons. The petitioners contended that no incriminating material relating to the specific assessment years sought to be reopened had been discovered during the search proceedings. In several instances, satisfaction notes either did not refer to the relevant assessment years or were not supplied to the petitioners. The reassessment proceedings were initiated for multiple years falling within the statutory block period solely on the basis of material allegedly found during the search of another person.

Issues Involved

  1. Whether proceedings under Section 153C can be initiated against a non-searched person without incriminating material pertaining to the specific assessment year.
  2. Whether discovery of material relating to one assessment year justifies reopening of all six preceding years.
  3. Whether the jurisdictional requirement of recording a valid satisfaction note was fulfilled.
  4. Whether completed assessments can be reopened in the absence of material having a bearing on the determination of total income for the relevant year.

Petitioner’s Arguments

The petitioners argued that the assumption of jurisdiction under Section 153C was illegal because no incriminating material pertaining to the relevant assessment years was found during the search. They submitted that material relating to a particular year cannot justify reopening of unrelated years. It was further contended that for completed assessments, reassessment is permissible only where seized material specifically relates to that year and has a bearing on the determination of income. In certain cases, the satisfaction notes were either not furnished or did not demonstrate any nexus between the seized material and the assessment years in question.

Respondent’s Arguments

The Revenue contended that once incriminating material is discovered during a search and is considered relevant to a non-searched person, proceedings under Section 153C can be validly initiated for the block period. It was argued that the statutory scheme 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 examined the statutory framework governing Sections 153A and 153C and emphasized that jurisdiction under Section 153C is contingent upon the existence of incriminating material belonging to or relating to the non-searched person. The Court held that reassessment of completed assessments cannot be sustained unless the material discovered during the search specifically pertains to the assessment year sought to be reopened and has a bearing on the determination of total income. Mere discovery of material relating to one year does not justify reopening of other years in the block period. Accordingly, initiation of proceedings without such year-specific material was held to be unsustainable in law.

Important Clarification

The Court clarified that the requirement 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, even if a search has been conducted in the case of another person.

Link to download the order – https://www.mytaxexpert.co.in/uploads/1772191156_ASHUTOSHAGARWALVsASSISTANTCOMMISSIONEROFINCOMETAXCENTRALCIRCLE28DELHIANDORS..pdf 

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