2025 (6) TMI 1612 - AT - Income Tax

Petition for adjournment filed by the assessee - HELD THAT - As held by the hon ble High Court there is no vested right for the appellant / assessee / petitioner to take the adjournment and as per the decision of Hon ble High Court in the case of R.B.Seth Jessaram Hospital 2024 (11) TMI 1429 - DELHI HIGH COURT the adjournment petition filed is required to be dismissed if it is motivated cryptic and without assigning any valid reasons. In view of the above petition for adjournment filed by the assessee is dismissed. Validity of assessment proceedings initiated u/s 153C OR 143(3) - search as conducted in the case of another entity - addition towards undisclosed receipts and towards unexplained advances from customers - HELD THAT - From the conjoint reading of sections 142 and 143 of the Act it is amply clear that the AO is required to pass order in writing making the admission of total income or loss of the assessee and thereby determines the amount total payable by the assessee however at the time of passing of the order the evidences as produced by the assessee or such other evidence as the AO may require or specified or such other material which he has gathered or came to his possession were required to be considered. Undoubtedly in the present case the documents showing the payment of Rs. 18 crores were found at the time of search in the premises of M/s. MBS Jewellers Private Limited and the very said document was used by the AO of the assessee for making the addition in the hands of the assessee. As mentioned by the AO / CIT-DR that the assessment for the year under consideration is the search year and therefore the rigors of Section 153C of the Act are not attracted. In our view the additions are required to be made by the AO within four corners of Section 143(3) of the Act. We noticed that AO in the present case has passed the order under Section 143(3) of the Act being the search year and not under Section 153C of the Act there is a difference between the powers of the AO when the AO is passing the order under Section 143(3) and the order passed by the AO under Section 153C read with Section 143(3) of the Act. For the purposes of Section 153C there has to be some satisfaction recorded by the AO before using the information in respect of the orders. In the present case CIT(A) without applying his mind and without considering the fact that the assessment year under consideration is the search year has deleted the addition on the wrong understanding that the requirement u/s 153C of the Act are required to be fulfilled and for that purposes CIT(A) has wrongly relied upon the order passed by the Tribunal for the assessment years which are covered by the search. We cannot countenance the same being contrary to Act. Therefore in our view the finding of ld.CIT(A) is without any basis and accordingly we set aside the order of ld.CIT(A). As we have annulled and set aside the order passed by the ld.CIT(A) we noticed that the ld.CIT(A) has not adjudicated the grounds raised by the assessee on merit and therefore for the purposes of deciding the issues on merit we deem it appropriate to remand back the matter to the file of LD.CIT(A) to decide the issue afresh on merit. Accordingly the appeal of Revenue is allowed for statistical purposes.

Summary

The core legal questions considered by the Tribunal in this appeal revolve around the validity and applicability of assessment proceedings initiated under Section 153C of the Income Tax Act, 1961, in the context of a search and seizure operation, and the consequent additions made to the assessee's income under Section 143(3). Specifically, the issues are:

1. Whether the Assessing Officer (AO) correctly initiated assessment proceedings for the assessment year (AY) 2010-11 based on the provisions of Section 153C of the Act, given that the search was conducted in the case of another entity but documents relating to the assessee were seized.

2. Whether the AO complied with the requirements of Section 153C, including recording satisfaction regarding the seized documents belonging to the assessee, and whether the CIT(A) erred in not following the Supreme Court decision regarding the sufficiency of satisfaction notes.

3. Whether the CIT(A) erred in deleting the additions made by the AO on the ground that the assessment proceedings under Section 153C were invalid and void ab initio.

4. The validity of the AO's addition of undisclosed income based on seized documents during the search operation under the provisions of Sections 142 and 143 of the Act, especially when the assessment year under consideration is the search year.

5. The propriety of the assessee's repeated adjournment requests and the Tribunal's approach towards such requests in light of judicial pronouncements emphasizing expeditious disposal of cases.

Issue-wise Detailed Analysis

Issue 1 & 3: Validity of Assessment Proceedings Initiated Under Section 153C for AY 2010-11

Legal Framework and Precedents: Section 153C empowers the AO to assess income of a person other than the searched person if incriminating material is found during search relating to such other person. The AO must record satisfaction regarding the seized material belonging to the other person before initiating proceedings. The Supreme Court ruling in the case cited by the Revenue held that when the AO for both the searched person and the other person is the same, it suffices to note in the satisfaction note that documents seized from the searched person belonged to the other person.

Court's Reasoning and Findings: The CIT(A) had earlier held that the assessment proceedings under Section 153C for AY 2010-11 were invalid because no proper notices under Section 153C were issued, and the initiation of assessment was solely based on previous years' Section 153C proceedings which were held invalid. The CIT(A) relied on earlier orders and ITAT decisions for AY 2009-10 and earlier years, which were upheld, to conclude that the proceedings under Section 153C were void ab initio.

The Tribunal, however, observed that the assessment year under consideration (2010-11) was the search year, and the AO had passed the order under Section 143(3), not under Section 153C. Thus, the rigors and procedural requirements of Section 153C were not attracted for this year. The Tribunal found that the CIT(A) erred in applying the Section 153C framework and precedents related to non-search years to the search year assessment. Therefore, the Tribunal set aside the CIT(A)'s order on this ground.

Application of Law to Facts: Since the AO did not initiate proceedings under Section 153C for AY 2010-11 but under Section 143(3), the procedural safeguards and satisfaction note requirements under Section 153C were not applicable. The Tribunal emphasized the distinction between assessments under Section 143(3) during search years and assessments under Section 153C for other years.

Conclusion: The initiation of assessment proceedings under Section 153C for AY 2010-11 was not valid as per CIT(A), but the Tribunal clarified that since the AO passed the order under Section 143(3) for the search year, the CIT(A)'s deletion of additions on the basis of Section 153C procedural lapses was incorrect. The matter was remanded for fresh adjudication on merits.

Issue 2: Compliance with Section 153C Requirements and Reliance on Supreme Court Decision

Legal Framework: Section 153C requires the AO to record satisfaction that seized documents belong to the other person before initiating proceedings. The Supreme Court ruling stated that when the AO is the same for both searched and other person, a note in the satisfaction file suffices.

Court's Interpretation: The CIT(A) held that no incriminating material was recorded in the satisfaction note, and thus the requirements of Section 153C were not met. The Revenue argued that the AO had recorded satisfaction in the other person's file and complied with Section 153C.

Tribunal's Analysis: The Tribunal noted that the assessment year under consideration was the search year and the AO passed the order under Section 143(3), not Section 153C. Hence, the procedural requirements under Section 153C, including satisfaction notes, were not relevant for this assessment year. The CIT(A) erred in applying Section 153C requirements to the search year assessment.

Conclusion: The Tribunal rejected the Revenue's contention that the CIT(A) erred in not following the Supreme Court decision on Section 153C satisfaction notes, as those requirements did not apply to the search year assessment under Section 143(3).

Issue 4: Addition of Undisclosed Income Based on Documents Found During Search and Assessment Under Sections 142 and 143

Legal Framework: Section 142 empowers the AO to issue notice and require production of documents and information. Section 143(3) mandates the AO to make assessment after considering all relevant material, including seized documents during search. The AO must consider the evidence and pass a reasoned order.

Key Evidence and Findings: Documents seized during search in the premises of M/s. MBS Jewellers Private Limited revealed agreements and payment details indicating undisclosed receipts of Rs. 18 crores to the assessee. The AO made additions based on these documents, treating them as undisclosed income.

Court's Reasoning: The Tribunal observed that since the assessment year was the search year, the AO was empowered to make additions under Section 143(3) based on the evidence collected during search. The AO's reliance on seized documents to assess undisclosed income was valid. The Tribunal noted that the CIT(A) had deleted the additions on the incorrect premise that Section 153C requirements were applicable, which was not the case for the search year.

Application of Law to Facts: The AO's action in making additions under Section 143(3) after considering the seized documents was legally sound. The Tribunal emphasized the difference in procedural requirements between assessments under Section 153C and assessments under Section 143(3) in search years.

Conclusion: The Tribunal set aside the CIT(A)'s deletion of additions and remanded the matter for fresh adjudication on merits, affirming the AO's authority to make additions based on seized documents under Section 143(3) for the search year.

Issue 5: Repeated Adjournment Requests and Tribunal's Approach

Legal Framework and Precedents: The Tribunal relied on authoritative judicial pronouncements emphasizing the need to curb routine and cryptic adjournment requests to prevent delay in justice delivery. The Supreme Court and High Courts have held that courts must act vigilantly to prevent abuse of adjournment requests and ensure expeditious disposal of cases.

Court's Reasoning: The assessee's counsel filed multiple adjournment applications without specific reasons, seeking postponements. The Tribunal observed that such requests were cryptic and repetitive, causing unnecessary delay. Citing decisions of the Delhi High Court and Supreme Court, the Tribunal underscored the importance of timely justice and rejected the adjournment application.

Conclusion: The Tribunal dismissed the adjournment petition, reinforcing the principle that adjournments should not be granted routinely or without valid grounds, to uphold the efficiency and credibility of the judicial process.

Significant Holdings

"In our view, the additions are required to be made by the Assessing Officer within four corners of Section 143(3) of the Act. Furthermore, we noticed that AO in the present case has passed the order under Section 143(3) of the Act, being the search year, and not under Section 153C of the Act, there is a difference between the powers of the AO when the AO is passing the order under Section 143(3) and the order passed by the AO under Section 153C, read with Section 143(3) of the Act."

"The CIT(A) without applying his mind and without considering the fact that the assessment year under consideration is the search year, has deleted the addition on the wrong understanding that the requirement under section 153C of the Act are required to be fulfilled and for that purposes, the ld.CIT(A) has wrongly relied upon the order passed by the Tribunal for the assessment years which are covered by the search. We cannot countenance the same being contrary to Act. Therefore, in our view, the finding of ld.CIT(A) is without any basis and accordingly, we set aside the order of ld.CIT(A)."

"As held by the hon'ble High Court, there is no vested right for the appellant / assessee / petitioner to take the adjournment and as per the decision of Hon'ble High Court in the case of R.B. Seth Jessaram (supra), the adjournment petition filed is required to be dismissed, if it is motivated, cryptic and without assigning any valid reasons."

Core principles established include:

• The procedural requirements of Section 153C, including recording of satisfaction, apply to assessments initiated under Section 153C and not to assessments under Section 143(3) in the search year.
• The AO is empowered to make additions under Section 143(3) based on seized documents during the search year without the need to comply with Section 153C procedures.
• Reliance on precedents related to Section 153C assessments for non-search years is misplaced when applied to search year assessments under Section 143(3).
• Repeated, vague, and unsubstantiated adjournment requests undermine the judicial process and must be resisted to ensure timely justice.

Final determinations:

The Tribunal allowed the Revenue's appeal for statistical purposes, set aside the CIT(A)'s order deleting the additions, and remanded the matter to the CIT(A) for fresh adjudication on merits considering the correct legal framework applicable to the search year assessment under Section 143(3). The Tribunal also dismissed the assessee's adjournment request, emphasizing the need to curb dilatory tactics.