The Delhi bench of the Income Tax Appellate Tribunal ( ITAT ) quashed the order passed by the Deputy Commissioner of Income Tax ( DCIT ) for the assessment year ( AY ) 2021-22, where the assessing officer ( AO ) had applied Section 143(3) of the Income Tax Act, 1961, instead of the appropriate Section 153C of the Income Tax Act.
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In this case, the assessee, Seema Jain, an individual earning income from rental properties, capital gains, and bank interest, had filed her income tax return ( ITR ) for the relevant year, declaring a total income of Rs. 89,56,500.
A search operation was conducted on 6-01-2021, at the premises of Parveen Kumar Jain and M/s Jainco Ltd. During this search, the AO got a piece of evidence from Parveen Kumar Jain’s WhatsApp chat, detailing cash payments related to the sale of a property owned by the assessee. The property in question, located at C-117, First Floor, Nirman Vihar, Delhi, was officially sold for Rs. 80 lakhs through banking channels. However, the AO alleged that an additional cash receipt of Rs. 1,55,00,000 was not disclosed in the ITR.
The AO, after recording the evidence, should have initiated proceedings under Section 153C of the Income Tax Act, 1961, applicable when documents or assets pertaining to a third party are found during a search. Instead, the assessment was conducted under Section 143(3).
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Due to this, the assessee challenged the procedure on legal grounds before the Commissioner of Income Tax ( Appeals ) [ CIT(A) ], contending that the assessment was invalid without compliance with Section 153C. The CIT( A ) upheld the addition made by the AO.
The assessee thus approached the ITAT for relief.
It was contended by the assessee that since the search material of a third party is being used against her, then the right course of action on the assessee would be in terms of Section 153C of the Income Tax Act, as the date of search in the hands of the assessee differs from that of Shri Parveen Kumar Jain.
The bench, by noting the Supreme Court ruling in CIT vs. Jasjit Singh, held that assessments involving third-party, the search materials must adhere to the procedures outlined in Section 153C of the Income Tax Statute. The ruling highlighted that the six-year block period relevant for assessment must be calculated from the date the AO receives the documents.
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The ITAT, comprising of Sktijit Dey ( Vice President ) and M. Balaganesh ( Accountant Member ) quashed the assessment order and held that the proceedings had no legal standing due to procedural lapses.
The bench allowed the appeal and held that any examination of other grounds raised was unnecessary since the assessment itself was void.
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