2025 (7) TMI 1174 - HC - Income Tax

Validity of Notice u/s 153C - whether incriminating material had been gathered or obtained? - HELD THAT -Notice u/s 153C could be issued only in respect of the Assessment Years for which the incriminating material had been gathered or obtained. See Sinhgad Technical Education Society 2017 (8) TMI 1298 - SUPREME COURT and Saksham Commodities Ltd. 2024 (4) TMI 461 - DELHI HIGH COURT .

Summary

ISSUES:

Whether a notice issued under Section 153C of the Income Tax Act, 1961 can pertain to an Assessment Year for which no incriminating material was found during search proceedings.Whether consequential notices issued under Sections 143(2) and 142(1) of the Income Tax Act, 1961 can be sustained when based on a Section 153C notice that is invalid.

RULINGS / HOLDINGS:

The Court held that a notice under Section 153C can only be issued for Assessment Years for which incriminating material was found and tabulated in the satisfaction note; issuance of such notice for an Assessment Year not covered by the satisfaction note is "wholly impermissible."The Court quashed the impugned notice under Section 153C for Assessment Year 2016-17 as it did not form part of the satisfaction note relating to the incriminating material found during the search.Consequential notices under Sections 143(2) and 142(1) issued for the same Assessment Year were also quashed as they were predicated on the invalid Section 153C notice.

RATIONALE:

The Court applied the legal framework established by the Supreme Court in Commissioner of Income Tax-III, Pune Vs. Sinhgad Technical Education Society, which held that the issuance of a Section 153C notice is contingent upon the presence of incriminating material specifically pertaining to the Assessment Year in question, making this an essential "jurisdictional fact."The Court relied on the principle that "incriminating material which was seized had to pertain to the Assessment Years in question" and absence of such correlation invalidates the notice under Section 153C.The Court further followed the Division Bench of the Delhi High Court in Saksham Commodities Ltd., which reaffirmed that the satisfaction note must demonstrate how the material gathered relates to the Assessment Year for which the notice is issued, rejecting the assumption that any material recovered during search empowers assessment for all preceding years.The Supreme Court's dismissal of the Special Leave Petition against the Delhi High Court decision reinforced the binding nature of this principle.No merits of the incriminating material itself were adjudicated; the decision was strictly on the jurisdictional validity of the notice under Section 153C for the Assessment Year not covered by the satisfaction note.