Sanjeev Gupta vs. DCIT, ITA No. 1927/Del/2024
The Income Tax Appellate Tribunal (ITAT), Delhi Bench has quashed the assessment order issued on the ground of incorrect application of Section 143(3) instead of Section 153C of the Income Tax Act, 1961. The tribunal’s order provides key clarifications regarding the assessment procedure when evidence is found in the course of a search involving a third party.
Background
The case arose out of a search conducted on January 6, 2021, targeting a third party, during which documents—including WhatsApp chats—were found, allegedly pointing to undisclosed cash investments and interest income of another taxpayer. The revenue authorities proceeded to issue notices under Section 153C for certain previous years based on these documents, but for AY 2021-22, continued the assessment under the normal provisions of Section 143(3).
The assessee contested the validity of the assessment, citing a range of procedural and legal grounds, including non-compliance with mandatory CBDT circulars regarding the Document Identification Number (DIN), and the absence of direct incriminating material.
Key Legal Issue
The major legal contention centered on whether assessments for the concerned years identified through seized documents in a third-party search must be completed strictly under Section 153C. The date for reckoning the six-year block period, the tribunal was urged, must be based on when the assessing officer (AO) of the “other person” (i.e., the assessee) receives the seized material, as opposed to the date of the actual search.
The revenue’s failure to follow this procedure, and instead complete the assessment under Section 143(3), was argued to have rendered the proceedings invalid.
Tribunal Findings
After detailed arguments and examination of precedents, the ITAT held:
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The appropriate procedure for making assessments when documents relating to a person other than the searched individual are found, is outlined in Section 153C. The block period of six years for these assessments must start from when the AO of the assessee receives the seized material and records satisfaction, not from the date of the search itself.
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Once Section 153C is invoked and the block period is determined, any regular assessment proceedings for those years automatically abate. New proceedings, if any, must strictly comply with Section 153C.
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As the assessment for AY 2021-22 was completed under Section 143(3) rather than under Section 153C, the process followed was legally flawed.
The tribunal relied on authoritative judicial decisions like DSL Properties Pvt. Ltd., V.K. Fiscal Services Pvt. Ltd., Akansha Gupta v. ACIT, and guidance from the jurisdictional High Court, all emphasizing the requirement for precise adherence to statutory procedure when invoking Section 153C.
Accordingly, the ITAT quashed the impugned assessment order, ruling it as “bad in law,” and allowed the appeal. All other grounds became academic and were not adjudicated.
Significance
This order underlines the necessity for tax authorities to strictly adhere to established statutory procedures in cases involving documents seized during searches of third parties. Procedural lapses, especially around the calculation of the block period and proper invocation of Section 153C, can invalidate an entire assessment. The ruling reinforces that due process and the rights of taxpayers are fundamental, even when substantive additions are at stake.
Conclusion
The ITAT’s decision sets an important precedent for cases stemming from search and seizure operations, clarifying how authorities must proceed when assessing third parties related to seized materials. It is a vital reference for both tax practitioners and assessing officers, reiterating that procedural compliance is paramount in sustaining lawful assessments.