Assessments under Section 153A are invalid if initiated for cash seized during an election period where the specific procedural exceptions under Rule 112F have been ignored by the Assessing Officer.
Issue
Whether assessment proceedings initiated under Section 153A of the Income-tax Act, 1961 for six preceding assessment years are legally valid when the underlying search or requisition is based on cash seized during an election period, a situation specifically covered by the exclusionary provisions of Rule 112F of the Income-tax Rules, 1962.
Facts
During an ongoing election period, the vehicle of the assessee was intercepted by an Election Surveillance Team, leading to the discovery and seizure of Rs. 10 lakhs in cash and a red cash voucher book under Section 131 of the Income-tax Act. Subsequently, a requisition under Section 132A was made. The Assessing Officer (AO) noted that the assessee had received Rs. 26.87 lakhs during the Assessment Year 2019-20.
Based on this, the AO initiated proceedings under Section 153A, not only for the relevant assessment year (2020-21) but also for the six preceding assessment years (including 2019-20). The assessee challenged these proceedings, arguing that their case fell under the specific exception carved out by Rule 112F, which restricts the AO’s power to issue notices for the preceding six years in cases where assets are seized in connection with an election process. It was also pointed out that the procedural requirements clarified by a CBDT circular, including the issuance of a certificate by the Investigation Officer in such cases, were not followed.
Decision
The Tribunal ruled decisively in favour of the assessee, holding that the entire proceedings initiated under Section 153A for the Assessment Years 2019-20 and 2020-21 were bad in law and, therefore, quashed them.
The Tribunal’s reasoning was as follows:
- Applicability of Rule 112F: The court affirmed that Rule 112F explicitly identifies a class of cases where the AO is precluded from automatically issuing notices for the preceding six assessment years. This class includes cases where assets (like cash) are seized or requisitioned in connection with an ongoing election in any assembly or parliamentary constituency.
- Case Falls within Exception: It was found as a matter of fact that the assessee’s case, involving cash found by a Surveillance Team during an election, clearly fell within the scope and ambit of Rule 112F.
- Restriction on AO’s Power: Because the case was covered by Rule 112F, the AO was statutorily prevented from issuing notices under Section 153A to assess or reassess the total income for the six assessment years prior to the year of requisition.
- Procedural Non-Compliance: The Tribunal highlighted that the procedure prescribed under the rule, as clarified by the relevant CBDT circular, was not adhered to. Specifically, no certificate was issued by the Investigation Officer, which is a key step in such cases. This procedural failure further vitiated the proceedings.
- Assessment Quashed: Due to the clear applicability of the exception under Rule 112F and the non-compliance with the prescribed procedure, the very foundation of the Section 153A notices for the six earlier years was deemed illegal. Consequently, the entire block assessment was held to be invalid and was quashed.
Key Takeaways
- Rule 112F as an Exception: Rule 112F provides a significant exception to the general power of the AO under Section 153A to assess income for six preceding years following a search or requisition.
- Election-Related Seizures: When cash or other assets are seized in connection with an election process, the AO cannot automatically trigger a six-year block assessment. The scope of inquiry is limited unless specific procedural requirements are met.
- Mandatory Procedure: The procedures outlined in the Rules and clarified by CBDT circulars for handling such specific cases (e.g., issuance of a certificate by the Investigation Officer) are mandatory. Failure to comply can render the entire assessment proceedings void.
- Protection for Assessee: This rule acts as a safeguard to prevent taxpayers from being subjected to expansive six-year scrutiny merely because cash was found during the heightened surveillance of an election period, provided the specific conditions of the rule are met.
IN THE ITAT MUMBAI BENCH ‘F’
Vijay Madan Varma
v.
Assistant Commissioner of Income-tax
Amit Shukla, Judicial Member
and Prabhash Shankar, Accountant Member
and Prabhash Shankar, Accountant Member
IT Appeal Nos. 2333 and 2334 (Mum.) of 2023
[Assessment years 2019-20 and 2020-21]
[Assessment years 2019-20 and 2020-21]
MAY 23, 2025
Bhupendra Shah for the Appellant. Manish Sareen, CIT DR for the Respondent.
ORDER
Amit Shukla, Judicial Member.- The aforesaid appeals have been filed by the assessee against consolidated order dated 09/12/2022 passed by ld. CIT (A)-48, Mumbai for the quantum of assessment passed u/s.143(3) r.w.s. 153A for the A.Y.2019-20 and 2020-21.
2. At the outset, it has been pointed out that the appeal of the assessee is time barred by 192 days. In support, assessee has filed an affidavit stating as under:-
3. After hearing both the parties, we find that there was a reasonable cause as assessee had no accountant nor he was aware of any such proceeding and there was a communication gap. It is also noted that there is no intentional delay by the assessee or any latches on his behalf. Accordingly, the delay is condoned.
4. In both the years apart from the grounds raised on merits, has also taken legal grounds which reads as under:-
“Additional Ground Number 1:
1. In the facts and circumstances of the case and in law, the learned Assessing Officer erred in passing the assessment order without providing Copy of certificate duly signed by the Investigating Officer under Rule 112F r.w.s 153A read with clause no. 4 and 5 of CIRCULAR NO. 10/2012 [F. NO. 282/22/2012-TT (INV. V)), DATED 31-12-2012 for AY 2020-21.
Additional Ground Number 2:
2. In the facts and circumstances of the case and in law, the learned Assessing Officer erred in passing the assessment order without recording satisfaction u/s 153A r.w.r 112F.
Additional Ground Number 3:
3. In the facts and circumstances of the case and in law, the learned Assessing Officer erred in passing the assessment order on the basis of approval granted u/s 153D in a mechanical manner and without considering the provisions of Rule 112F.
Additional Ground Number 4:
4. In the facts and circumstances of the case and in law, the learned Assessing Officer erred in passing the assessment order on the basis of seized material which is only dumb documents without signatures and names of recipient and payer and also without dates in some cases and therefore no addition could have been made.
5. On merits, assessee has basically challenged the addition of Rs.26,87,300/- on the basis of increase in cash receipt book and turnover of Rs.13,00,000/- in the A.Y.2019-20; and addition of Rs.10,00,000/- on account of cash found and seized from the assessee’s possession; Rs.7,00,266/- on the basis of cash receipts; and denial of claim of deduction u/s.54 for the A.Y.2020-21. Since the additional grounds raised are purely legal ground challenging the validity of proceedings u/s.153A and all the relevant documents and material for adjudicating the said grounds are already part of the record, therefore, same have been admitted and are being adjudicated. First and foremost, the assessee has challenged the validity of proceedings u/s.153A on the ground that the ld. AO has passed the assessment order without following the requirement and procedure laid down in Rule 112F r.w.s.153A read with third proviso.
6. The brief facts qua the aforesaid legal issue are that assessee is an individual who had filed his return of income for A.Y.2019-20 on 01/10/2019 declaring total income of Rs.15,70,340/-; and for A.Y.2020-21, return of income was filed on 19/03/2021 declaring total income of Rs.1,65,00,880/-. As noted by the ld. AO, Static Surveillance Team on duty at Anand Nagar, Toll Naka, Mulund (East) informed that cash of Rs. 10 lacs had been intercepted on 22.04.2019 from the Vehicle Innova Crysta bearing registration No.-MH-02 DA 8252 in which assessee was present. Accordingly, QRT Team-3, present at Vashi reported at the camp office at Navghar police Station, Mulund (East), Mumbal-400081. A red cash voucher book (Ajanta) containing written pages 1 to 39 was also found and impounded u/s 131 on 22.04.2019. The cash and diary was taken into custody by the Surveillance team to Navghar Police Station, Mumbai, from where PDIT (Inv)-1 Mumbai made requisition u/s 132A on 3004-2019. Assessee in his statement recorded on oath has stated that the cash was received from Shri Sajid Sheikh towards payment for stamp duty, registration and other statutory payments. The cash was seized and deposited in PD account of PDIT (Inv.)-1, Mumbai as the source of cash was not substantiated with documentary evidence. Since the cash was claimed to be belonging to Sajid Sheikh, the information was forwarded to the Assessing officer having jurisdiction over his case for further necessary action.
7. During the course of enquiry, explanation of the entries in red cash voucher book which was impounded was asked and the entries of the same have been incorporated from pages 2-4 of the assessment order for A.Y.2019-20. The assessee’s explanation was that red cash voucher pertains to one of its employees, Shri Rakesh Patade, however, the ld. AO noted that during the course of statement u/s.131, assessee had claimed that cash voucher pertains to him and he also confirmed that cash voucher has been signed by its employee Shri Rakesh Patade and therefore, denial of cash voucher is after thought of assessee. As per the red cash voucher book there was a receipt of cash of Rs.10,00,000/- and during the course of the statement it was admitted that assessee has received Rs.26,87,000/- during A.Y.2019-20. Based on these proceedings u/s.153A were initiated for previous 6 assessment years and AY 2020-21, accordingly, notices were issued u/s.153A on 27/01/2021 and thereafter, ld. AO has made the addition of Rs.26,87,300/- in A.Y.2019-20 and Rs.17,00,266/- in A.Y.2020-21.
8. Before us it has been stated that here in this case during the general election in the year 2019, Surveillance Team on duty at Anand Nagar, Toll Naka, Mulund (East) had intercepted the assessee and cash of Rs. 10 lacs was found on 22.04.2019 from the Vehicle in which assessee was present. Thereafter, the department was called upon and the cash and one red cash voucher book running into 1 to 39 pages were imponded u/s 131 on 22.04.2019. Now based on this requisition u/s 132A, notices u/s.153A was issued for six assessment years prior to the assessment year in which the cash was impounded from the cash of the assessee. Ld. Counsel submitted that the case of the assessee falls within the third proviso to Section 153A r.w. Rule 112F of the Income Tax Rules wherein the legislature had categorically stated that ld. AO is not required to issue notices for assessing or re-assessing the total income for six assessment years in cases where search was conducted u/s.132 or requisition made u/s. 132A and cash for the assets were seized during the election period generally on a single warrant. Thus, here in this case also the cash was seized during the election period; therefore, ld. AO could not have issued a notice u/s.153A for all the six assessment years and only for the year in which the requisition u/s.132A was made. He also referred and relied upon the CBDT Circular No. 10 of 2012 dated 31/12/2012. Further, there is no certificate issued by the ld. AO and none of the procedure laid down in the circular has been followed. Accordingly, the entire assessment proceedings u/s.153A is bad in law.
9. In this regard a report was called for by the Bench from the ld. AO through ld. DR, which has been filed before us, the relevant content of which is reproduced hereunder:-
Ground No. 1: This ground is not applicable in the case of the assessee. The relevant portion of the Board’s Circular no. 10/2012 dtd.31.12.2012 is reproduced here under
CIRCULAR NO. 10/2012 (F. NO. 282/12/2012-IT (INV. V, DATED 31-12-2013
As per provisions contained in section 1534 and 153C of the Income Tax Act, 1961, the Assessing Officer is required to issue notice for assessing or reassessing the total income for six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition is made.
2. in consequence of the powers conferred by clauses (64) and (66) of the Finance Act, 2012 the Central Government amended the Income Tax Rules, 1962, to insert a new Rule 112F after the existing Rule 1128 specifying the class or classes of cases in which the Assessing Officer shall not be required to issue notice for assessing or reassessing the total income for six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition is made
3. The aforesaid amendment was introduced with a view to reduce infructuous and unnecessary proceedings under the Income Tax Act, 1961 in cases where a search is conducted u/a 132 or requisition made w/a 132A and cash or other assets are seized during the election period, generally on a single warrant, and no evidence is available, or investigation required, for any assessment year other than the assessment year relevant to the previous year in which search is conducted or requisition it made.
4. in such cases, the officer investigating the case, with the approval of the Director General of Income Tax, shall certify that
(1) the search is conducted under section 132 or the requisition is made under section 1324 of the Act in the territorial area of an assembly or parliamentary constituency in respect of which a notification has been issued under section 30, read with section 56 of the Representation of the People Act. 1951 or
| (ii) | the assets seized or requisitioned are connected in any manner to the ongoing election process in on assembly or parliamentary constituency, and |
| (il) | no evidence is available or investigation is required for any assessment year other than the assessment year relevant to the previous year in which search is conducted or requisition is made |
5. The certificate of the investigating officer shall be communicated to the Commissioner of Income Tax and the Assessing Officer having jurisdiction over the case of such person.
In this case, the proceedings for six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted were initiated. Therefore, there was no requirement of providing copy of certificate duly signed by the investigating officer to the assessee.
Ground no. 2: As per the Income tax Act on which warrant u/s. 132/132A was issued, no satisfaction note is required u/s. 153A of the Income Tax Act.
Ground no. 3: Copy of approval u/s. 153D of the Act is enclosed.
Ground no. 4: In this case Static Surveillance Team on duty at Anand Nagar, Toll Naka, Mulund (East) Informed that cash of Rs. 10 lacs had been intercepted on 22.04.2019 from the Vehicle linnova Crysta bearing registration No.-MH-02 DA 8252 in which Mr. Vijay Madan Verma was present. Accordingly, QRT Team-3, present at Vashi reported at the camp office at Navghar police Station, Mulund (East), Mumbai-400081.
A search action under section 132A of the Income Tax Act, 1961 was carried out in the case of Shri Vijay Madam Verma vide Panchnama dated 30.04.2019 (copy enclosed) on the basis of information that cash sum of Rs. 10 Lacs had been found on 22.04.2019.on interception of the vehicle Innova Crysta having registration number in the name of aforesaid assessee. The case was centralized and PAN received on 10.12.2020 form the ITO-26(2)(1), Mumbai to this charge. As per enquiries conducted, a red cash voucher book (Ajanta) containing written pages 1 to 39 found and impounded u/s 131 on 22.04.2019 during enquiry proceedings in the case of Shri Vijay Madan Verma at Navghar Police Station, Mumbai-400081 Shri Vijay Madan Verma in his statement recorded on oath has stated that the cash was received from Shri Sajid Sheikh towards. (The copy of incriminating materials i.e. red cash voucher book (Ajanta) containing written pages 1 to 39 is enclosed).
10. The ld. DR submitted that here in this case requisition u/s.132A was carried out in the case of the assessee where Panchnama was drawn on 30/04/2019, on the basis of information that sum of Rs.10,00,000/- have been found on 22/04/2019 on the interception of vehicle Innova Crysta having registration number in the name of the assessee. Apart from that during inquiry it was found that one diary was also found from the possession of the assessee which contained certain incriminating information regarding cash transactions. Thus, this case does not completely fall under the third proviso to Section 153A or Rule 112F and there was no requirement of providing copy of certificate duly signed by the Investigating Officer to the assessee. Thus, accordingly, ld. AO justified in issuing notices u/s.153A for the six previous assessment years.
11. We have heard both the parties and also perused the relevant material placed on record. It is an undisputed fact that during the course of the General Election of 2019, Surveillance Team on duty at Anand Nagar, Toll Naka, Mulund (East) who had intercepted the vehicle of the assessee on 22/04/2019, and from his possession Rs.10,00,000/- was found. The QRT Team-3, presented at Vashi reported at the camp office at Navghar Police Station, Mulund (East), and the said cash was seized on 30/04/2019 and was deposited in the PD account of PDIT (Inv.)-1, and accordingly Panchnama was prepared on 30/04/2019.
12. Ergo, the requisition of car was made in the territorial area of an assembly or parliamentary constituency during general election of 2019. The third proviso of Section 153A reads as under:-
“Provided also that the Central Government may by rules made by it and published in the Official Gazette (except in cases where any assessment or reassessment has abated under the second proviso), specify the class or classes of cases in which the Assessing Officer shall not be required to issue notice for assessing or reassessing the total income for six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition is made and for the relevant assessment year or years:”
13. The aforesaid proviso provides that the Central Government can make a rule and specify the class or classes of cases in which the ld. AO shall not be required to issue notice for assessing or re-assessing the total income for six assessment years immediately preceding the assessment year relevant to the previous year in which search was conducted or requisition was made. The Central Government in pursuance of said proviso had inserted Rule 112F which reads as under:-
112F. The class or classes of cases in which the Assessing Officer shall not be required to issue notice for assessing or reassessing the total income for six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition is made, shall be the cases—
| (i) | where, as a result of a search under sub-section (1) of section 132 of the Act or a requisition made under section 132A of the Act, a person is found to be in possession of any money, bullion, jewellery or other valuable articles or things, whether or not he is the actual owner of such money, bullion, jewellery, etc.; and |
| (ii) | where, such search is conducted or such requisition is made in the territorial area of an assembly or Parliamentary constituency in respect of which a notification has been issued under section 30 read with section 56 of the Representation of the People Act, 1951 (43 of 1951), or where the assets so seized or requisitioned are connected in any manner to the ongoing election in an assembly or Parliamentary constituency: |
Provided that this rule shall not be applicable to cases where such search under section 132 or such requisition under section 132A has taken place after the hours of poll so notified:
Provided further that this rule shall not be applicable to cases where any assessment or reassessment has abated under the second proviso to section 153A and where any assessment or reassessment has abated under section 153C.
14. The aforesaid rule clearly specifies the class or classes of cases wherein ld. AO is not required to issue notices for assessing or re-assessing the total income for six assessment years and one such class of cases is that where search is conducted or requisition is made in the territorial area of an assembly a parliamentary constituency in respect of which notification has been issued u/s. 30 r.w.s. 56 of the Representation Of The People Act, 1951 or where the assets seized or requisitioned are connected in any manner to the ongoing election process in on assembly or parliamentary constituency. There is no dispute that car was found during the period of General Parliamentary Election of 2019. What was found from the car of the assessee was cash amount of Rs.10,00,000/- which was intercepted by the Surveillance Team on 22/04/2019 and was deposited by the camp office Navghar police Station, Mulund (East) in the PD account of PDIT (Inv.)-1, Mumbai. To seize the cash requisition u/s.131A was issued and Panchanama was prepared on 30/04/2019. The assessee’s case thus clearly falls within the scope and ambit of Rule 112F read with third proviso to Section 153A. If the case of the assessee falls under Rule 112F, then the statute provides that ld. AO is precluded from issuing any notice u/s.153A or 153C for assessing or re-assessing the total income for the six assessment years prior to the previous year when the requisition was made. The CBDT has also clarified this issue in Circular No.10 of 2012 dated 31/12/2012 in the following manner:-
SECTION 132, READ WITH SECTION 132A OF THE INCOME-TAX
ACT, 1961-SEARCH & SEIZURE-ASSESSMENT OF PRECEDING
YEARS IN SEARCH CASES DURING ELECTION PERIOD
CIRCULAR NO. 10/2012 [F. NO. 282/22/2012-IT (INV V)], DATED
31-12-2012
As per provisions contained in section 153A and 153C of the Income Tax Act, 1961, the Assessing Officer is required to issue notice for assessing or reassessing the total income for six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition is made.
2. In consequence of the powers conferred by clauses (64) and (66) of the Finance Act, 2012 the Central Government amended the Income Tax Rules, 1962, to insert a new Rule 112F after the existing Rule 112E, specifying the class or classes of cases in which the Assessing Officer shall not be required to issue notice for assessing or reassessing the total income for six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition is made.
3. The aforesaid amendment was introduced with a view to reduce infructuous and unnecessary proceedings under the Income Tax Act, 1961 in cases where a search is conducted u/s 132 or requisition made u/s 132A and cash or other assets are seized during the election period, generally on a single warrant, and no evidence is available or investigation required, for any assessment year other than the assessment year relevant to the previous year in which search is conducted or requisition is made
4. In such cases, the officer investigating the case, with the approval of the Director General of Income Tax, shall certify that –
(1) the search is conducted under section 132 or the requisition is made under section 132A of the Act in the territorial area of an assembly or parliamentary constituency in respect of which a notification has been issued under section 30. read with section 56 of the Representation of the People Act, 1951, or
| (ii) | the assets seized or requisitioned are connected in any manner to the ongoing election process in an assembly or parliamentary constituency: and |
| (ii) | no evidence is available or investigation is required for any assessment year other than the assessment year relevant to the previous year in which search is conducted or requisition is made. |
5. The certificate of the investigating officer shall be communicated to the Commissioner of Income Tax and the Assessing Officer having jurisdiction over the case of such person.
15. The aforesaid Circular clearly clarifies the intent of the legislature, firstly, that if the case falls under Rule 112F then, ld. AO shall not issue notice for assessing or re-assessing the total income for six assessment years immediately preceding the assessment year in which search or requisition was made; and secondly, this amendment was introduced to reduce infructuous and unnecessary proceedings under the Income Tax Act in cases where search is conducted u/s.132 or requisition was made u/s.132A and cash were seized during the election period on a single warrant and no evidence is available or investigation is required. Here in this case the cash was found during the election period and the requisition u/s.132A has been made from the police station. The said Circular further provides a very categorical procedure that Investigation Officer by the approval of Director General of Income Tax has to certify the three situations provided therein and then the said certificate of the Investigation Officer is communicated to the CIT and the AO having jurisdiction over the case of such person. As admitted by the ld. AO in his report, there no such certificate has been issued.
16. The only case of the ld. DR before us is that there was an enquiry u/s.131 during which one red cash voucher book was found and impounded. First of all the diary was found from the car alongwith cash of Rs.10,00,000/- on 22/04/2019 by the Surveillance Team on duty. There was no further investigation which was required or in fact was carried out by the department. The assessee’s case clearly falls within the parameters of Rule 112F r.w. third proviso to Section 153A. Once the procedure prescribed in said rule as clarified by the CBDT has not been complied with and no certificate has been issued by the Investigation Officer even when the cash was found during the election period, ld. AO could not have issued notices u/s.153A for the six earlier assessment years. Accordingly, there was a clear violation of Rule 112F and the procedures laid down by the CBDT vide Circular No.10 of 2012 (supra). Accordingly, the entire proceedings u/s.153A for the A.Y.2019-20 and 2020-21 is held as bad in law and accordingly, the same is quashed. On this ground alone the assessment order for A.Y.2019-20 and A.Y.2020-21 in invalid and consequently, the additional ground raised by the assessee is allowed.
17. Since we have already quashed the assessments on additional ground No.1, therefore, we are not deciding or adjudicating the additional grounds and the assessee’s appeal on merits have become infructuous.
18. In the result, appeal of the assessee is allowed.