S. 153C Income Tax Act | Public Info, Unrelated Data Seized From Searched Person Not Enough To Issue Show Cause Notice: Gujarat High Court
The Gujarat High Court has observed that information available in public domain or any unrelated information seized from the searched person without a connection to the assessee is not enough to be the basis of issuing a show cause notice under Section 153C of the Income Tax Act. The court was hearing a plea challenging notice dated 13.10.2021 by the Assessing Officer (AO) for the...
The Gujarat High Court has observed that information available in public domain or any unrelated information seized from the searched person without a connection to the assessee is not enough to be the basis of issuing a show cause notice under Section 153C of the Income Tax Act.
The court was hearing a plea challenging notice dated 13.10.2021 by the Assessing Officer (AO) for the Assessment Years (AY) 2014-15 to 2020-21 issued to the petitioner.
A search under Section 132 of the Act was conducted of Land Broker & Financer Group, Ahmedabad on 15.10.2019, wherein digital data/images from the mobile phone of one Dhaval Teli were acquired, based on which notices under Section 153C of the Act were issued to the petitioners on 13.10.2021.
During the search, images of an Memorandum of Understanding of land bearing Survey No. 329 were recovered. The MoU did not bear the name of the petitioners anywhere. The assessment in the case of the searched person, Dhaval Teli, was completed on 14.07.2021 and the satisfaction note was recorded on 11.10.2021 by the AO, and accordingly the show-cause notice under Section 153C was issued to the petitioners alleging undisclosed investment in the land deal.
Section 153C empowers the tax authority to assess the income of any person whose documents or assets are found during a search or seizure operation on a different person.
The authority argued that MoU, which was found during the search from Dhaval Teli, between the seller - Dilip bhai Patel and the buyer - Dhirenbhai Bharvad mentions the total sale consideration of Rs.39,32,25,000, out of which Rs.1crore was paid in cash on 01.03.2016 to the seller.
This is in contradistinction to the amount of sale consideration found by the AO between the same seller and the present petitioners, as the same land was sold for an amount of Rs.12 crore vide sale deed registered as No. 885 dated 12.04.2018. Hence the AO has recorded his satisfaction that there was undisclosed investment of Rs. 27,32,00,000 in the sale of the land for AY 2019-20.
A division bench of Justice AS Supehia and Justice Pranav Trivedi observed that the search against Dhaval Teli (searched person) and the satisfaction note have no link which embroils the petitioners into the assessment proceedings. It said that the MoU entered into between the seller — Dilipbhai Patel and the buyer — Dhirenbhai Bharvad refers to the total sale consideration of Rs. 39,32,25,000, out of which Rs. 1,00,00,000 was paid in cash on 01.03.2016.
"Indubitably, the name of the petitioners does not figure in the MoU. The same does not even remotely connect the petitioners to the MoU," the court said. It further said:
"Thus, the AO in his satisfaction has positively recorded that he ascertained from the“public domain” that the said land was purchased by the petitioners. The AO presumed that since the seller entered into the MoU for Rs.39,32,25,000/-, he could not have entered into a sale with the petitioners for Rs.12,00,00,000/- without receiving money. The MoU found from mobile images shared between Dilip Patel, Ashok Atmaram Patel (proposed seller) and Dhiren R. Bharwad (proposed purchaser) disclosed the sale of Survey No. 329 for Rs. 39.32 crores".
The court observed that the searched person, in his statement before the AO asserted that he did not broker the land deal and only supplied 7/12 Form and Form No. 6 showing land entries post search.
The court remarked that these forms "were not seized during the search" but were handed over by the broker to the AO post search; and after these forms were supplied the AO obtained the "sale deed information from the public domain".
"It is pertinent to note that there was no incriminating material found during the search having a direct nexus with the petitioners. Thus, the information/documents collected by the AO from the broker or seller cannot be said to create a live link involving the petitioners, and the presumption of escaped assessment based on the difference between Rs.39.32 crores and Rs. 12 crores is unsustainable. In the present case, the search conducted against Shri Dhaval Teli (the searched person)did not yield any document relating to undisclosed income “relating to” or “pertaining to” the petitioners. Hence, the satisfaction recorded by the AO roping the petitioners into assessment proceedings on the basis of digital data impounded during the search, which has no nexus with the petitioners, is required to be quashed and set aside," the bench added.
The bench said that the AO has acted de hors the provisions of Section 153C of the Act and thus quashed the show cause notice to the petitioner.
The petition was allowed.
Case title: SANDHYA MAULIK PATEL v/s ASSISTANT COMMISSIONER OF INCOME TAX
C/SCA/ 4162/2023