2025 (7) TMI 1240 - HC - Income Tax

Assessment u/s 153C - incriminating material found in search regarding assessee - information contained in the seized material which relates to a non-searched person - requirement that the information contained in the seized material which relates to a non-searched person should have a bearing on his income for the AO to assume the jurisdiction under Section 153C of the Act. HELD THAT - It is clear from the plain reading of the language that the notice u/s 153C of the Act can be issued only if the AO is satisfied that the books or documents or assets seized or requisitioned have a bearing on the determination of the total income of such other person . The contention that the AO is not required to be satisfied that the information contained in books or account or document seized or requisitioned has a bearing on the income of the Assessee (the Assessee being the person other than the searched person) if the information relates to the such person is insubstantial. The said contention was contrary to the plain language of Section 153C(1) of the Act. Impugned notice(s) are set aside.

Summary

ISSUES:

Whether initiation of reassessment proceedings under Section 153C of the Income Tax Act, 1961 is valid in absence of incriminating material having a bearing on the income of the assessee for the relevant assessment years.Whether the Assessing Officer (AO) must be satisfied that the seized books of account, documents, or assets have a bearing on the determination of total income of the person other than the searched person before issuing notice under Section 153C.Whether the AO can issue notices under Section 153C for all assessment years within the block period merely because incriminating material relates to one or some of those years.Whether assessments under Section 153C can be reopened or initiated mechanically without nexus between seized material and the relevant assessment years.Interpretation of the jurisdictional satisfaction requirement under Section 153C(1) of the Act regarding the relation of seized material to the income of the non-searched person.

RULINGS / HOLDINGS:

The initiation of reassessment proceedings under Section 153C is unsustainable if the seized material does not contain any incriminating information that has a bearing on the income of the assessee for the relevant assessment years. The Court emphasized that "no addition can be made in respect of the completed assessments in absence of any incriminating material."The AO must be "satisfied that the books of account or documents or assets seized or requisitioned have a bearing on the determination of the total income of such other person" before issuing notice under Section 153C. The contention that such satisfaction is not required if the information merely relates to the person is rejected as contrary to the plain language of Section 153C(1).The AO cannot issue notices under Section 153C indiscriminately for all assessment years within the block period based solely on incriminating material relating to some years. The AO must identify and record reasons for how the material is likely to materially influence the computation of income for each assessment year for which proceedings are initiated.Assessments under Section 153C cannot be reopened mechanically or en bloc without establishing a nexus between the seized documents and the relevant assessment years. The Court held that "it would be impermissible for the AO to commence such enquiry if it is apparent that the documents/assets in question have no bearing on the income of the assessee for the relevant assessment years."The jurisdictional satisfaction under Section 153C(1) is a mandatory condition precedent for assuming jurisdiction, and the absence of such satisfaction renders the reassessment notices invalid and liable to be quashed.

RATIONALE:

The Court applied the statutory framework of Sections 132, 153A, and 153C of the Income Tax Act, 1961, emphasizing that search and seizure under Section 132 is a prerequisite for invoking Sections 153A and 153C, which are designed to bring to tax undisclosed income detected through incriminating material.Precedents including CIT v. Kabul Chawla, CIT v. Abhisar Buildwell (P.) Ltd., CIT v. U.K. Paints (Overseas) Ltd., and Saksham Commodities Limited v. Income Tax Officer were relied upon to affirm that assessments under Sections 153A and 153C must be based on incriminating material that has a direct bearing on the income of the assessee for the relevant years.The Court highlighted the distinction between the existence of power and the exercise thereof under Section 153C, underscoring that mere possession of seized documents relating to the assessee is insufficient without a nexus to the income of the relevant years.The Court rejected the Revenue's interpretation that the AO could issue notices under Section 153C without satisfaction regarding the bearing of the seized information on the assessee's income, as this would render statutory safeguards and provisos redundant, contrary to principles of statutory interpretation.The decision reiterates the principle that the jurisdictional fact for reassessment under Section 153C is the presence of incriminating material relevant to specific assessment years, and the AO must record satisfaction and reasons accordingly before initiating proceedings.