Delhi Bench of Income Tax Appellate Tribunal (ITAT), quashed the assessment orders for the Assessment Years (AYs) 2011-12 to 2016-17 due to Jurisdictional issues as well as held that the search based additions will be invalid without the incriminating material. The ruling was made on November 20, 2024, in the appeals filed by the company against the orders of the Commissioner of Income Tax (Appeals).
K.R. Chawla Consulting Pvt. Ltd,the appellant-assessee appealed after a search was conducted on the premises of Harvansh Chawla, a third party, in 2016. During the search, certain documents belonging to K.R. Chawla Consulting Pvt. Ltd. were seized. The Assessing Officer (AO) subsequently initiated proceedings under section 153C of the Income-tax Act, 1961, for the AYs 2011-12 to 2016-17 based on this seized material.
The assessee, represented by Advocate Madhur Aggarwal, argued that the assessment was invalid for the AYs 2011-12 to 2013-14. The company contended that the satisfaction note required to initiate the assessment under section 153C of the Act was recorded by the AO only on January 18, 2021, making the search year AY 2021-22.
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Therefore, the assessments for the years 2011-12 to 2013-14, which were completed before this date, were beyond jurisdiction and barred by the limitation period. This argument was supported by judicial precedents such as Pr. CIT vs. Karina Airlines International Ltd. and CIT vs. Jasjit Singh.
On the other hand, the Revenue’s counsel,Sumer Singh Meena, agreed that the satisfaction note was recorded on January 18, 2021, but pointed out that a separate satisfaction note was recorded on May 15, 2019, by the AO of the searched person, Harvansh Chawla.
However, the Tribunal sided with the assessee, observing that since the satisfaction note was recorded on January 18, 2021, the assessments for AYs 2011-12, 2012-13, and 2013-14 were outside the scope of section 153C.
The Tribunal thus allowed the appeals for these three years, setting aside the assessments as void ab initio, and quashing the orders for AYs 2011-12, 2012-13, and 2013-14.
The next aspect of the case concerned the determination of rental income for AYs 2014-15 to 2016-17. The AO had based his addition of Rs. 7,56,21,407 on a valuation report dated April 8, 2010, which was seized during the search.
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The valuation report estimated a monthly rental income of Rs. 1.90 crore for a commercial property in Gurgaon owned by the assessee. However, the assessee contended that the property was never rented out, and no rental income was earned during the relevant years. The addition was thus not warranted, as the rental income was not accrued or received.
The Tribunal observed that the valuation report was merely an estimate and lacked corroborative evidence linking the alleged rental income to the years under assessment. Citing judicial rulings, including CIT vs. Sinhgad Technical Education Society and Pr. CIT vs. Index Securities (P) Ltd., the Tribunal emphasized that for an assessment under section 153C, the seized material must be year-specific and should establish a direct link to the relevant assessment years.
Tribunal concluded that the seized valuation report could not be treated as “incriminating material” without supporting evidence. As such, the addition of rental income for AYs 2014-15 to 2016-17 was not justified, and the appeals for these years were also allowed.
The two member Bench comprising Sudhir Pareek(Judicial Member) and Sifa Ur Rahman(Accountant Member) underscored the importance of adherence to the procedural requirements under section 153C of the Income-tax Act. The Tribunal quashed the assessments for AYs 2011-12 to 2013-14 due to lack of jurisdiction and found no merit in the addition of rental income for AYs 2014-15 to 2016-17, highlighting the need for proper evidence to support such claims.
The case serves as a reminder of the critical role of satisfying legal requirements in tax assessments and the limitations on the use of seized materials in cases of completed or unabated assessments.
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