Dismissal of Income Tax Appeals Due to Jurisdictional Issue in Case ITA 1039/DEL/2022

Introduction

The Income Tax Appellate Tribunal (ITAT) Delhi Bench’s decision in ITA Nos. 1038 & 1039/Del./2022 involves a significant jurisdictional issue that led to the dismissal of appeals filed by the Revenue against Brys Resorts Pvt. Ltd. for the assessment years 2012-13 & 2013-14. This case highlights critical aspects of jurisdiction under section 153C of the Income Tax Act, 1961, and the prerequisites for a searched party versus a non-searched party.

Background

The appeals arose from a common order of CIT (A)-4, Kanpur dated 22.11.2021. The appellant (ACIT, Central Circle-2, Noida) contested the deletions made by the CIT (A) regarding additions made to the respondent’s (Brys Resorts Pvt. Ltd.) income for the aforementioned assessment years. The appeals were rooted in a search and seizure operation under section 132 of the Act conducted on 09.10.2013 along with Shubhkamna Buildtech Pvt. Ltd. Group of cases. Subsequent notices under section 153C were issued, leading to ex-parte assessment orders that added substantial amounts to the assessee’s income under section 68 of the IT Act.

Jurisdictional Issue

The core of the dispute revolved around the initiation of proceedings under section 153C without adequate ‘satisfaction note’ or incriminating material specifically related to the respondent. The jurisdiction to assess income under this section hinges on the presence of incriminating documents or materials seized during a search operation not belonging to the searched party but to another person (the assessee in this case).

Decision

The Tribunal, after examining the submissions and the legal precedents, found that there was no seized incriminating material pertaining to the assessee for the relevant assessment years. Emphasizing on a string of judicial decisions, it was held that the lack of incriminating material directly impacts the validity of assumption of jurisdiction under section 153C. Consequently, the Tribunal allowed the cross objections filed by the assessee, thereby dismissing the Revenue’s appeals as infructuous.

Implications

This judgement underscores the importance of a clear chain of evidence and the need for satisfaction notes when shifting jurisdiction from a searched party to a non-searched party under section 153C. It reinforces the principle that the burden of proof lies with the department to establish the presence of incriminating materials justifying the invocation of jurisdiction under this section.

Conclusion

The case of ITA 1039/DEL/2022 sets a precedent on the stringent requirements for assumption of jurisdiction under section 153C of the Income Tax Act. It reiterates the judiciary’s cautious approach towards safeguarding taxpayers’ rights against baseless reassessments and emphasizes the need for the department to adhere to procedural and evidentiary standards in search and seizure operations.

Dismissal of Income Tax Appeals Due to Jurisdictional Issue in Case ITA 1039/DEL/2022