ITAT Delhi on Invalid Section 153C Proceedings for Lack of Proper Satisfaction: Anil Chaudhary Vs ACIT

1. Background and Context of the Dispute

The Delhi Bench of the Income Tax Appellate Tribunal in Anil Chaudhary Vs ACIT (ITA No. 2935/DEL/2023, order dated 30/08/2024) examined the validity of assessments framed under Section 153C read with Section 143(3) of the Income Tax Act 1961 for Assessment Years (AYs) 2014-15 to 2019-20.

The assessee, Anil Chaudhary, proprietor of M/s Chaudhary Trading Company, is engaged in the business of trading glass bottles. The controversy arose from a search and survey action carried out in the case of M/s Pragati Glass (P) Ltd. (PGPL) on 12.05.2019, during which certain documents and statements were obtained and later used to initiate proceedings under Section 153C against the assessee.

The core issues before the Tribunal were:

  • Whether Section 153C proceedings for AY 2014-15 (and by implication 2015-16) were barred by limitation in view of the proviso to Section 153C and the law laid down in CIT v. RRJ Securities Ltd. and CIT v. Jasjit Singh.
  • Whether valid and legally sustainable satisfaction was recorded both by the Assessing Officer (AO) of the searched person and the AO of the assessee as mandated by Section 153C(1) post the 2014 amendment—specifically, whether the seized documents were shown to have a bearing on the determination of total income of the assessee for the relevant years.
  • Whether the additions made under Section 69C on account of alleged unrecorded cash purchases from PGPL could survive when the foundational jurisdiction under Section 153C itself was under challenge.

The Tribunal ultimately allowed all appeals of the assessee on jurisdictional grounds, holding the Section 153C proceedings to be invalid for all years in question.

2. Chronology of Key Events

The Tribunal noted the following sequence of events (as placed on record by the assessee’s Authorised Representative):

  1. 12.05.2019 – Search conducted in the case of M/s Pragati Glass (P) Ltd. (PGPL).

  2. 10.03.2021 – Satisfaction note prepared by the AO of the searched person for initiating Section 153C proceedings in respect of the assessee (treated as “other person” under the provision).

  3. 30.03.2021 – Satisfaction note recorded by the AO of the assessee on receipt of seized material from the AO of the searched person, along with dissemination of information regarding alleged cash involvement.

  4. 30.03.2021 – Notices under Section 153C issued for AYs 2014-15 to 2019-20 by the AO having jurisdiction over the assessee.

  5. 12.04.2021 – Returns filed by the assessee in response to the Section 153C notices declaring the following incomes:

    • AY 2014-15 – Rs. 26,09,730
    • AY 2015-16 – Rs. 18,09,080
    • AY 2016-17 – Rs. 23,80,900
    • AY 2017-18 – Rs. 26,30,151
    • AY 2018-19 – Rs. 37,46,910
    • AY 2019-20 – Rs. 63,28,050

  6. 07.07.2021 – Order under Section 127 passed by Pr. Commissioner of Income Tax-12, New Delhi, transferring jurisdiction.

  7. 07.03.2022 – Show cause notice issued by ACIT, Central Circle-17, Delhi.

  8. 15.03.2022 – Notice under Section 143(2) issued subsequent to the show cause.

  9. 23.03.2022 – Approval under Section 153D granted by the Additional Commissioner through common letter for all assessment years.

  10. 24.03.2022 & 25.03.2022 – Assessments completed under Section 153C/143(3) for AYs 2014-15 to 2019-20, with uniform pattern of additions under Section 69C towards alleged cash purchases from PGPL.

  11. 24.08.2022 – Commissioner of Income Tax (Appeals)-27, New Delhi, dismissed the assessee’s appeals.

The Tribunal heard further appeals challenging both jurisdictional and substantive aspects of these orders.

3. Nature of Business and Accepted Trading Results

The assessee, as proprietor of M/s Chaudhary Trading Company, was regularly engaged in trading of glass bottles. The AO had accepted the audited books of account and declared results in the assessment orders. The gross profit (GP) details as accepted by the AO for AYs 2014-15 to 2019-20 were as follows:

  • Sales increased significantly over the years, from Rs. 6,56,14,007 in AY 2014-15 to Rs. 19,96,30,263 in AY 2019-20.
  • GP percentage remained broadly stable in the 9–11% range across all years (e.g., 10.11% for AY 2014-15, 10.63% for AY 2015-16, 9.40% for AY 2019-20).

These figures demonstrated consistent business performance and formed part of the assessee’s argument that the alleged cash purchases had no independent evidentiary support beyond statements and a seized paper and were contradicted by regular books already accepted by the AO.

4. Transactions with M/s Pragati Glass (P) Ltd. and Additions Under Section 69C

The AO focused exclusively on the assessee’s dealings with PGPL, alleging that part of the purchases from PGPL were made in cash and not recorded in the assessee’s books. The AO prepared a table of opening balance, purchases, payments through banking channels and closing balances vis-à-vis PGPL for each of the six AYs and then made separate additions under Section 69C for alleged unexplained expenditure (purported cash component of purchases).

Illustratively, for AY 2014-15:

  • Opening balance with PGPL – Rs. 46,28,493
  • Purchases – Rs. 4,53,50,226
  • Payments through banking channels – Rs. 4,27,50,931
  • Closing balance – Rs. 93,31,825
  • Addition under Section 69C – Rs. 2,49,26,243

Similar patterns of addition (ranging from about Rs. 2.34 crore to Rs. 3.34 crore) were made for each AY 2014-15 to 2019-20 solely on the footing that the assessee allegedly made cash purchases from PGPL outside the books.

5.