ITAT Delhi Annuls Search Assessment Due to Absence of Section 153C Notice: White Orchid Hospitality Judgment Analysis

Overview of the Tribunal's Decision

The Delhi Bench of the Income Tax Appellate Tribunal delivered a significant ruling in the matter concerning White Orchid Hospitality (P) Ltd., striking down the assessment order pertaining to AY 2021-22. The core finding revolved around jurisdictional inadequacy stemming from the failure to issue the requisite notice under Section 153C of the Income Tax Act, 1961. This procedural lapse rendered the entire assessment proceedings invalid from inception (void ab initio).

Background Facts and Search Proceedings

Search Operation Details

In October 2020, revenue authorities executed a search operation under Section 132 of the Act targeting Mr. Manoj Kumar Singh and his associated entities, including Mr. Subhash Chander Gupta. The investigation uncovered various undisclosed cash dealings involving these individuals and connected parties.

During the search conducted at the residential premises and locker facility located at #145, Bahera Enclave, Paschim Vihar, New Delhi, belonging to Mr. Subhash Chander Gupta, officials discovered and seized certain documents linked to Mrs. Manya Gupta. Among the seized materials was an agreement to sell dated 27.07.2020, documented as pages 86-89 of Annexure A1.

Details of the Agreement Document

The seized agreement purportedly involved a transaction between the assessee-company M/s White Orchid Hospitality Pvt. Ltd. (seller) and Mrs. Manya Gupta (buyer) concerning property situated at Plot No.J-48, South City-1, Gurugram. The documented sale consideration totaled Rs.8,43,89,760/-. According to the agreement's contents, Mrs. Manya Gupta allegedly advanced Rs.2.50 crore as earnest deposit to the seller, comprising Rs.2 crore purportedly paid through cash channels.

Administrative Actions Taken

Following the search proceedings, the assessee's matter was transferred to Central Circle-29, New Delhi, through an order dated 22.12.2020 issued by the CIT, Central, New Delhi. The assessee-company had originally submitted its return under Section 139 on 22.12.2021, declaring nil total income.

Procedural Timeline and Notice Issuance

Critical Notice Discrepancies

On 19.04.2022, the Assessing Officer issued a notice under Section 143(2) concerning AY 2021-22. Subsequently, on 22.04.2022, a comprehensive questionnaire under Section 142(1) was dispatched. A show cause notice followed on 15.06.2022, to which the assessee provided responses through the ITBA portal on 16.08.2022.

Satisfaction Note Recording

The Assessing Officer recorded a satisfaction note on 01.06.2022 (subsequently referenced as 18.04.2022 in certain records) for initiating proceedings under Section 153C. However, a critical distinguishing factor emerged: while notices under Section 153C were properly issued for AYs 2015-16 through 2020-21, no such notice was ever generated for AY 2021-22.

Multiple Assessment Years Coverage

The satisfaction note mechanically covered seven assessment years spanning 2015-16 to 2021-22, despite the fact that the assessee-company had only come into existence on 18.04.2018, meaning it could only have been operational from AY 2019-20 onwards. This temporal impossibility demonstrated clear non-application of judicial mind.

Assessment Completion and Additions Made

On 07.09.2022, the Assessing Officer finalized the assessment under Section 153C read with Section 143(3) and made an addition of Rs.2 crore under Section 69 of the Act, treating it as unexplained money. The assessee challenged this order before the Commissioner of Income Tax (Appeals), who dismissed the appeal vide order dated 22.07.2025.

Contentions Before the Tribunal

Arguments Advanced by the Assessee

The assessee's representative presented multiple compelling arguments:

Jurisdictional Deficit: The primary contention centered on the complete absence of a notice under Section 153C for AY 2021-22. While such notices were duly issued for the six preceding assessment years (AYs 2015-16 to 2020-21) on 19.04.2022 under Section 153C read with Section 153A, only a notice under Section 143(2) was dispatched for the impugned year.

Legal Framework Violation: Once proceedings are instituted under Section 153C, the assessment can only be concluded following the pathway prescribed under Section 153A, not under Section 143(3). The assessment order itself incorrectly referenced Section 153C/143(3), highlighting the procedural confusion.

Documentary Evidence Issues: The seized agreement to sell was characterized as a "dumb document" lacking signature from the buyer, Mrs. Manya Gupta. Additionally, the assessee produced evidence of cancellation of this agreement along with a demand draft for Rs.50,00,000/- representing refund of advance money, which was submitted to both the Assessing Officer and the Commissioner (Appeals) but remained unaddressed.

Temporal Impossibility: The satisfaction note recorded for seven assessment years included periods (AYs 2015-16 to 2018-19) before the company's incorporation date of 18.04.2018, demonstrating mechanical preparation without factual verification.

Notice Under Section 142(1) Admission: The notice dated 22.04.2022 issued under Section 142(1) explicitly acknowledged that assessments for AYs 2015-16 to 2020-21 were to be completed under Section 153C, while AY 2021-22 was to proceed under Section 143(3), confirming the absence of Section 153C notice for the disputed year.

Notification to Authorities: Through correspondence dated 16.05.2022 (submitted on 19.05.2022), the assessee explicitly informed the Assessing Officer about its incorporation date of 18.04.2018, emphasizing that no proceedings prior to AY 2019-20 could lawfully be initiated.

Revenue's Position

The Department's representative argued that:

  • The search proceedings validly discovered the agreement to sell dated 27.07.2020
  • The satisfaction note specifically referenced this seized document
  • Common satisfaction notes covering multiple assessment years are legally acceptable, citing the Indian National Congress case precedent
  • The assessee failed to substantiate claims regarding refund of earnest money
  • The Commissioner (Appeals) and Assessing Officer appropriately relied upon the seized agreement

Tribunal's Analysis and Findings

Examination of Factual Matrix

The Tribunal meticulously reviewed the record and observed several undisputed facts:

  1. The assessee-company's incorporation occurred on 18.04.2018, making assessment years prior to 2019-20 inapplicable
  2. The satisfaction note dated 18.04.2022 mechanically referenced seven assessment years based on a single document relevant only to AY 2021-22
  3. No notice under Section 153C was issued for AY 2021-22, unlike the six prior years
  4. The first communication for AY 2021-22 was issued under Section 143(2), not Section 153C

The Tribunal relied on several authoritative judicial pronouncements: