> v. Deputy Commissioner Of Income Tax, Central Circle- 19 & Anr

$~27 * IN THE HIGH COURT OF DELHI AT NEW DELHI+ W.P.(C) 16306/2023 & CM APPL. 65672/2023 (Interim Relief) DEV TECHNOFAB LIMITED. ..... Petitioner Through: Mr. Sachit Jolly, Ms. Ankita Prakash, Mr. Abhyudaya Shankar Bajpai & Mr. Aditya Rathore, Advs. versus DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE- 19 & ANR. ..... Respondents Through: Mr. Prashant Meharchandani, SSC with Mr. Akshat Singh, JSC, Ms. Ritika Vohra & Mr. Utkarsh Kandpal, Advs. CORAM:HON'BLE MR. JUSTICE YASHWANT VARMAHON'BLE MR. JUSTICE AMIT BANSAL O R D E R% 24.05.2024 1.This writ petition has been preferred seeking the following reliefs: a) That this Hon’ble Court be pleased to issue a Writ of Certiorari, or any other appropriate Writ, order or direction of like nature, to quash the Impugned Notices dated 24.04.2023 issued under Section 153C of the Act for AY 2014-15 to 2020-21 (Annexure – P1 at Pg. Nos. 44-50) and the Impugned Order dated 22.11.2023 (Annexure – P2 at Pg. Nos. 51-134) and the consequential proceedings being completely illegal and without jurisdiction; b) For such further and other reliefs, including costs of this Petition, as this Hon’ble Court may deem fit and proper in the nature and circumstances of the case. 2.Undisputedly, and as would be evident from a reading of the Satisfaction Note pertaining to the non-searched entity, namely the petitioner, the material which is alluded to pertains to Assessment Year [“AY”] 2019-20 only. Action under Section 153C of the Income Tax Act, 1961 [“Act”], however, sought to encompass AYs 2014-15 to 2020-21. Insofar as AYs other than AY 2019-20 are concerned the impugned action would clearly not sustain bearing in mind the judgment rendered by the Court in Saksham Commodities Limited vs. Income Tax Officer, Ward 22(1), Delhi & Anr [2024 SCC OnLine Del 2551] and where while explaining the statutory imperatives of incriminating material we had held as follows: “63. On an overall consideration of the structure of Sections 153A and 153C, we thus find that a reopening or abatement would be triggered only upon the discovery of material which is likely to “have a bearing on the determination of the total income” and would have to be examined bearing in mind the AYs' which are likely to be impacted. It would thus be incorrect to either interpretor construe Section 153C as envisaging incriminating materialpertaining to a particular AY having a cascading effect and which would warrant a mechanical and inevitable assessment orreassessment for the entire block of the “relevant assessment year”. 64. In our considered view, abatement of the six AYs' or the “relevant assessment year” under Section 153C would follow the formation of opinion and satisfaction being reached that the material received is likely to impact the computation of income for a particular AY or AYs' that may form part of the block of ten AYs'. Abatement would be triggered by the formation of that opinion rather than the other way around. This, in light of the discernibly distinguishable statutory regime underlying Sections 153A and 153C as explained above. While in the case of theformer, a notice would inevitably be issued the moment a search isundertaken or documents requisitioned, whereas in the case of thelatter, the proceedings would be liable to be commenced only uponthe AO having formed the opinion that the material gathered islikely to inculpate the assessee. While in the case of a Section 153A assessment, the issue of whether additions are liable to bemade based upon the material recovered is an aspect which wouldmerit consideration in the course of the assessment proceedings,under Section 153C, the AO would have to be prima facie satisfied that the documents, data or asset recovered is likely to “have abearing on the determination of the total income”. It is only oncean opinion in that regard is formed that the AO would be legallyjustified in issuing a notice under that provision and which in turnwould culminate in the abatement of pending assessments orreassessments as the case may be. 65.We would thus recognize the flow of events contemplatedunder Section 153C being firstly the receipt of books, accounts,documents or assets by the jurisdictional AO, an evaluation andexamination of their contents and an assessment of the potentialimpact that they may have on the total income for the six AYs' immediately preceding the AY pertaining to the year of search and the “relevant assessment year”. It is only once the AO of the non-searched entity is satisfied that the material coming into itspossession is likely to “have a bearing on the determination of thetotal income” that a notice under Section 153C would be issued.Abatement would thus be a necessary corollary of that notice.However, both the issuance of notice as well as abatement wouldhave to necessarily be preceded by the satisfaction spoken of abovebeing reached by the jurisdictional AO of the non-searched entity. 66. Therefore, and in our opinion, abatement of the six AYs' or the “relevant assessment year” would follow the formation of that opinion and satisfaction in that respect being reached. 67. On an overall consideration of the aforesaid, we come to thefirm conclusion that the “incriminating material” which is spoken of would have to be identified with respect to the AY to which it relates or may be likely to impact before the initiation of proceedings under Section 153C of the Act. A material, documentor asset recovered in the course of a search or on the basis of arequisition made would justify abatement of only those pendingassessments or reopening of such concluded assessments to whichalone it relates or is likely to have a bearing on the estimation ofincome. The mere existence of a power to assess or reassess the six AYs' immediately preceding the AY corresponding to the year ofsearch or the “relevant assessment year” would not justify asweeping or indiscriminate invocation of Section 153C. 68.The jurisdictional AO would have to firstly be satisfied that thematerial received is likely to have a bearing on or impact the totalincome of years or years which may form part of the block of six orten AYs' and thereafter proceed to place the assessee on noticeunder Section 153C. The power to undertake such an assessmentwould stand confined to those years to which the material mayrelate or is likely to influence. Absent any material that may eithercast a doubt on the estimation of total income for a particular yearor years, the AO would not be justified in invoking its powers conferred by Section 153C. It would only be consequent to such satisfaction being reached that a notice would be liable to be issued and thus resulting in the abatement of pending proceedings and reopening of concluded assessments.” 3.That only leaves us to examine the contention of Mr. Jolly, learned counsel appearing for the petitioner, who submits that even for AY 2019-20 the Assessing Officer [“AO”] does not refer to any incriminating material. According to learned counsel the mere recovery of a ledger account cannot possibly be construed as being incriminating. 4.We find ourselves unable to pursue this line of inquiry which is suggested bearing in mind the obvious disputed issues of fact which arise. We also bear in consideration the following conclusions and observations as they appear in the satisfaction note as drawn: “5.4 In respect of M/s DNC, the following investigations revealed that it was a bogus entity: 3.That only leaves us to examine the contention of Mr. Jolly, learned counsel appearing for the petitioner, who submits that even for AY 2019-20 the Assessing Officer [“AO”] does not refer to any incriminating material. According to learned counsel the mere recovery of a ledger account cannot possibly be construed as being incriminating. 4.We find ourselves unable to pursue this line of inquiry which is suggested bearing in mind the obvious disputed issues of fact which arise. We also bear in consideration the following conclusions and observations as they appear in the satisfaction note as drawn: “5.4 In respect of M/s DNC, the following investigations revealed that it was a bogus entity: Sh. Paras Mal Lodha (who was searched twice by theDirectorate of Income Tax Investigation, Delhi) was found tobe actively involved in arranging accommodation entries and hawala transactions. It was further learnt during the course ofsearch on HP/MB Group a part of its project was awarded to DNC.Directorate of Income Tax Investigation, Delhi) was found tobe actively involved in arranging accommodation entries and hawala transactions. It was further learnt during the course ofsearch on HP/MB Group a part of its project was awarded to DNC. The scanned copies of the GST Registration Certificate and acancelled cheque of DNC were also found in the Whatsappmessages of Sh. Paras Mal Lodha during the course of search on him on 07.04.2019. The presence of such messages inrespect of DNC with a Hawala/Entry Operator who had donesiphoning off of funds in earlier EPC contracts of HP groupalso raised suspicion with respect to the EPC Contractawarded by the group to M/s DNC Infrastructure PrivateLimited. cancelled cheque of DNC were also found in the Whatsappmessages of Sh. Paras Mal Lodha during the course of search on him on 07.04.2019. The presence of such messages inrespect of DNC with a Hawala/Entry Operator who had donesiphoning off of funds in earlier EPC contracts of HP groupalso raised suspicion with respect to the EPC Contractawarded by the group to M/s DNC Infrastructure PrivateLimited. It is relevant to mention here that investigations were also carried out in the case of DNC by the Hyderabad Zonal Unit of the Directorate General of Goods and Service Tax Intelligence (regarding DNC). The incident report No. 116/2019-20-GST dated 25.10.2019 filed by the Unit revealed that DNC was involved in wrongful claim of Input carried out in the case of DNC by the Hyderabad Zonal Unit of the Directorate General of Goods and Service Tax Intelligence (regarding DNC). The incident report No. 116/2019-20-GST dated 25.10.2019 filed by the Unit revealed that DNC was involved in wrongful claim of Input Tax Credit as it is was without receipt of commensurate material or services. The relevant extract of their incident report is being reproduced below: In his statement to GST authorities, MD of the M/s DNC - Sh. Dirishala Naresh Chaudhary had accepted to wrongful availment of ITC and reversed ITC in some cases. The report of the Hyderabad Zonal Unit of the Directorate General of GST Intelligence further concluded that even the payments claimed to be made to suppliers of materials were also found to be bogus along with sub-contractors. No supply of any material had actually taken place by these suppliers. Sh. Dirishala Naresh Chaudhary had accepted to wrongful availment of ITC and reversed ITC in some cases. The report of the Hyderabad Zonal Unit of the Directorate General of GST Intelligence further concluded that even the payments claimed to be made to suppliers of materials were also found to be bogus along with sub-contractors. No supply of any material had actually taken place by these suppliers. In the wake of this background, the search and survey actions were carried in case of DNC. Also, search& seizure action u/s 132, was conducted at the residence of its Managing Director, Mr. Dirishala Naresh Chowdary on 01.11.2019. were carried in case of DNC. Also, search& seizure action u/s 132, was conducted at the residence of its Managing Director, Mr. Dirishala Naresh Chowdary on 01.11.2019. To ascertain if any activity of DNC was genuine, investigations were carried to ascertain that DNC did not actually provide any genuine supply of work/services and funds were merely siphoned off. investigations were carried to ascertain that DNC did not actually provide any genuine supply of work/services and funds were merely siphoned off. During the search, statement of Mr.Dirishala Naresh Chowdary, Managing Director of DNC, was recorded on oath and was asked to provide the details of the work being carried out by DNC for various projects along with details regarding the selection of the sub-contractor parties for these projects and nature of work carried out by them. No satisfactory answer could be provided. Chowdary, Managing Director of DNC, was recorded on oath and was asked to provide the details of the work being carried out by DNC for various projects along with details regarding the selection of the sub-contractor parties for these projects and nature of work carried out by them. No satisfactory answer could be provided. (i)Mr. Dirishala Naresh Chowdary was not even aware of the sub-contractors and how the selection of these sub-contractors was done for carrying out this project ‘worth over a hundred crore, which is not realistic. of the sub-contractors and how the selection of these sub-contractors was done for carrying out this project ‘worth over a hundred crore, which is not realistic. (ii)No proofs of any work being carried out by the sub-contractors was made available by DNC during the search. contractors was made available by DNC during the search. (iii)No details regarding the projects and even key employees could be provided. employees could be provided. From further, action in case of Yogesh Gupta (found as an entry operator) and M/s Shree Gold, proofs of accommodation entry activity of DNC was further found. Relevant excerpt of the statement of Sh.Yerram Kishore: entry operator) and M/s Shree Gold, proofs of accommodation entry activity of DNC was further found. Relevant excerpt of the statement of Sh.Yerram Kishore: Analysis of the bank account statement of M/s DNC further revealed that immediately after receipt of funds from MB Power (Madhya Pradesh) Ltd., the same were transferred to several Delhi based entities such as 5 Star Infracon Pvt. Ltd., Allways Town Planners Private Limited, Planwell Industries Corporation Private Limited etc. which were found to be non-existent at their registered address during field investigations which raised further doubts over the genuineness of transactions between MB Power (Madhya Pradesh) Ltd. and DNC Infrastructure Pvt. Ltd. and that the same represented siphoning off of funds from the project. revealed that immediately after receipt of funds from MB Power (Madhya Pradesh) Ltd., the same were transferred to several Delhi based entities such as 5 Star Infracon Pvt. Ltd., Allways Town Planners Private Limited, Planwell Industries Corporation Private Limited etc. which were found to be non-existent at their registered address during field investigations which raised further doubts over the genuineness of transactions between MB Power (Madhya Pradesh) Ltd. and DNC Infrastructure Pvt. Ltd. and that the same represented siphoning off of funds from the project. 6. Therefore, in view of the above findings, I am satisfied that seized documents/digital data and information contained therein, relates to/pertains to M/s Dev Technofab Limited and have a bearing on the determination of total income of this person. In view of the same, I am further satisfied that it is a fit case for initiating proceedings u/s 153C r.w.s.153A of the Act for the AYs 2014-15 to 2020-21.” 6. Therefore, in view of the above findings, I am satisfied that seized documents/digital data and information contained therein, relates to/pertains to M/s Dev Technofab Limited and have a bearing on the determination of total income of this person. In view of the same, I am further satisfied that it is a fit case for initiating proceedings u/s 153C r.w.s.153A of the Act for the AYs 2014-15 to 2020-21.” 5.In view of the aforesaid, the writ petition partly succeeds. The impugned action under Section 153C of the Act, pertaining to AYs 2014-15, 2015-16, 2016-17, 2017-18, 2018-19 and 2020-21 are hereby quashed and set aside. 6.However, and insofar as AY 2019-20 is concerned, the same is left untouched. All rights and contentions of respective parties are kept open to be addressed in the ongoing assessment proceedings for AY 2019-20. YASHWANT VARMA, J MAY 24, 2024/kk AMIT BANSAL, J