ITAT Delhi on Section 153C: Assessments Quashed for Absence of Incriminating Material and Wrong Adoption of Section 143(3)

The Delhi Bench of the Income Tax Appellate Tribunal has delivered a significant decision in the case of JSP Projects Private Limited Vs DCIT, where a cluster of five appeals covering Assessment Years (AYs) 2015-16, 2016-17, 2019-20, 2020-21 and 2021-22 was adjudicated through a consolidated order.

The controversy primarily revolved around:

• Validity of assessments framed under Section 153C for AYs 2015-16, 2016-17 and 2019-20 in the absence of incriminating material relating to the assessee, and
• Legality of assessments for AYs 2020-21 and 2021-22 framed under Section 143(3) despite the triggering of Section 153C proceedings.

The Tribunal ultimately quashed all five assessments—three under Section 153C and two under Section 143(3)—on pure legal grounds, without venturing into the merits of the additions.

Factual Matrix and Procedural History

Appeals and Assessment Years Involved

The assessee, JSP Projects Private Limited, had filed five separate appeals before the ITAT against orders dated 25.03.2025 passed by the CIT(A)-25, New Delhi. These orders emanated from assessments framed as under:

• AYs 2015-16, 2016-17 and 2019-20: under Section 153A/153C
• AYs 2020-21 and 2021-22: under Section 143(3)

Given the overlapping legal issues, all appeals were heard together and disposed of by way of a single composite order.

Origin of Proceedings: Search on Alankit Group

A search operation under Section 132 was conducted on Alankit Group on 18.10.2019. During this search, certain material and electronic data were found and seized. The Assessing Officer (AO) of the searched party later recorded satisfaction that some of these documents allegedly related to JSP Projects Private Limited and transmitted them to the AO having jurisdiction over the assessee.

On the basis of such satisfaction and transfer:

• Section 153C proceedings were initiated against the assessee for AYs 2015-16, 2016-17 and 2019-20, and
• Separately, regular scrutiny assessments under Section 143(3) were framed for AYs 2020-21 and 2021-22, despite Section 153C having been triggered in the assessee’s case.

Grounds Raised by the Assessee

AYs 2015-16, 2016-17 and 2019-20: Section 153C Assessments

For these three years, the assessee attacked the very foundation of the Section 153C proceedings as well as the additions made. The broad planks of challenge were:

1. Absence of incriminating material

   • No books, documents or material belonging to the assessee and having incriminating character were allegedly found during the search on Alankit Group.
   • The AO’s reliance on ledger accounts produced during post-search proceedings was questioned, on the footing that such ledgers do not constitute seized incriminating material.

2. Limitation and block period computation (proviso to Section 153C)

   • For AY 2015-16, the assessee asserted that the “deemed date of search” for Section 153C purposes should be taken as 15.02.2022, i.e., the date on which seized documents were received by the AO having jurisdiction over the assessee.
   • On this reckoning, the six-year block in terms of Section 153C would run from AY 2016-17 to AY 2021-22, thereby excluding AY 2015-16 unless the case involved “escaped income represented by an asset” within the meaning of the proviso—a satisfaction which was never recorded.

3. Non-supply and inadequacy of satisfaction note

   • The assessee contended that the satisfaction note recorded by the AO of the searched person had not been properly supplied, and thus a mandatory jurisdictional precondition stood unfulfilled.
   • Furthermore, the satisfaction recorded by the AO of the assessee (e.g., DCIT, Circle-13(1), Delhi) was alleged to be mechanical, stereotyped and devoid of real application of mind.

4. Invalid jurisdictional transfer under Section 127(2)

   • The assessments were framed by DCIT, Central Circle-28, Delhi, pursuant to an order issued under Section 127(2) by PCIT-4, Delhi.
   • The assessee argued that this transfer order was passed merely on the basis of a letter from ITO (Hqrs), office of CCIT (Central)-2, without recording independent reasons and without proper agreement of an authority of equal rank, rendering it legally unsustainable.

5. Reliance on electronic data without compliance with Section 65B / Section 63 of BSA 2023

   • The additions were heavily based on soft data / Excel sheets seized from third-party premises.
   • In the absence of a certificate under Section 65B of the Indian Evidence Act, 1872 or compliance with Section 63 of the Bharatiya Sakshya Adhiniyam, 2023, such electronic data could not be admitted as valid evidence, according to the assessee.

6. Additions under Sections 68, 69A, 69C and related issues

   • Large additions were made in respect of alleged unexplained unsecured loans, interest and notional commission, invoking Section 68, Section 69A and Section 69C.
   • The assessee asserted that proper documentary evidence had been produced and that the AO made no independent inquiry.
   • It was also contended that the same funds had been taxed multiple times, and that the peak theory ought to have been applied.