Case Note & Summary
The petitioner, Pankajkumar Kanaiyalal Soni, an individual, challenged a notice dated 09.07.2021 issued under Section 153C of the Income Tax Act, 1961 for Assessment Year 2010-11, and the consequent assessment order dated 20.02.2026 passed under Section 144 read with Section 153C read with Section 250 of the Act, along with the demand notice dated 20.02.2026. The background involves a search and seizure action under Section 132 of the Act conducted on 06.03.2018 in the case of third parties, namely Satyam, Sangani, and Shaligram Group Companies. During the search, the residential premises of one Mr. Satyam Sangani were searched, and certain documents were seized. Based on these documents, the Assessing Officer issued a notice under Section 153C to the petitioner, alleging that the documents belonged to the petitioner. The petitioner filed a reply stating that no incriminating material was found during the search that belonged to him, and that the notice was issued beyond the period of limitation. Despite the reply, the Assessing Officer passed a best judgment assessment order under Section 144 read with Section 153C, making additions to the petitioner's income. The legal issues considered were whether the Section 153C notice was valid in the absence of incriminating material belonging to the petitioner, whether the reassessment beyond four years was barred by limitation, and whether the assessment order violated principles of natural justice. The petitioner argued that the notice was issued without recording satisfaction that the seized documents belonged to him, and that the reassessment was time-barred. The respondents contended that the notice was valid and the assessment was justified. The court analyzed the provisions of Section 153C and held that the notice was invalid as there was no incriminating material found during the search that belonged to the petitioner. The court also held that the reassessment beyond four years was barred by limitation as the original assessment under Section 143(3) was completed and there was no failure on the part of the petitioner to disclose material facts. Additionally, the assessment order was set aside for violating principles of natural justice. The court quashed the notice, assessment order, and demand notice, allowing the petition.
Headnote
A) Income Tax - Section 153C Notice - Incriminating Material - The notice under Section 153C of the Income Tax Act, 1961 requires the Assessing Officer to record satisfaction that any money, bullion, jewellery or other valuable article or thing or books of account or documents seized or requisitioned belongs or belong to a person other than the person searched. In the absence of any incriminating material found during the search of third parties that belonged to the petitioner, the notice is invalid. (Paras 5-10) B) Income Tax - Reassessment - Limitation - Reassessment under Section 153C read with Section 149 beyond four years from the end of the relevant assessment year is barred unless there is failure on the part of the assessee to disclose fully and truly all material facts. Since the original assessment under Section 143(3) was completed, the reassessment notice issued after four years is invalid. (Paras 11-15) C) Income Tax - Best Judgment Assessment - Natural Justice - The assessment order under Section 144 read with Section 153C was passed without providing adequate opportunity to the petitioner to respond to the show cause notice, violating principles of natural justice. The Assessing Officer failed to consider the petitioner's reply and passed a mechanical order. (Paras 16-19)
Issue of Consideration
Whether the notice under Section 153C of the Income Tax Act, 1961 and the consequent assessment order are valid when no incriminating material was found during the search of third parties that belonged to the petitioner, and whether the reassessment beyond four years from the end of the relevant assessment year is barred by limitation under Section 153C read with Section 149.
Final Decision
The court allowed the petition, quashing the notice dated 09.07.2021 under Section 153C, the assessment order dated 20.02.2026 under Section 144 read with Section 153C read with Section 250, and the demand notice dated 20.02.2026 under Section 156 of the Income Tax Act, 1961 for Assessment Year 2010-11.
Law Points
- Section 153C notice requires satisfaction that incriminating material belongs to person other than searched person
- Reassessment beyond four years requires failure to disclose material facts
- Non-application of mind invalidates notice
- Best judgment assessment under Section 144 without proper opportunity violates natural justice
