Provisional B/S Referring to Position as on 30-09-2005 Can’t Be Said to Be Incriminating Material for AY 2004-05 & 2005-06

Case Details: Principal Commissioner of Income-tax (Central)- 3 vs. Ridgeview Construction (P.) Ltd - [2025] 172 taxmann.com 52 (Delhi)

Judiciary and Counsel Details

• Yashwant Varma & Harish Vaidyanathan Shankar, JJ.
• Indruj Singh Rai, SSC, Sanjeev Menon, Rahul Singh, JSCs, Anmol Jagga & Gaurav Kumar, Advs. for the Appellant.
• Gautam Jain & Manish Yadav, Advs. for the Respondent.

Facts of the Case

The Delhi High Court recently ruled on a case concerning the validity of assessment proceedings initiated under Section 153C of the Income Tax Act, 1961. The case arose from a survey conducted on November 20, 2007, at the premises of Mr. Suresh Kumar Gupta, a chartered accountant.

The tax authorities alleged that Mr. Gupta was an “Entry Operator” who controlled multiple companies without any actual business operations and used them merely to issue accommodation entries. During the search, a provisional balance sheet dated September 30, 2005, relating to M/s Ridgeview Construction Pvt. Ltd. was found and seized.

Assessing Officer (AO) sought to initiate assessment proceedings against Ridgeview Construction for the Assessment Years (AYs) 2004-05 and 2005-06, arguing that the seized document provided grounds for reassessment under Section 153C.

The case was first heard by the Income Tax Appellate Tribunal (ITAT), which ruled in favor of Ridgeview Construction. The Tribunal held that the provisional balance sheet did not constitute incriminating material and did not pertain to the assessment years in question.

The matter reached before the Delhi High Court.

High Court Held

The Delhi High Court affirmed ITAT’s view that the provisional balance sheet neither contained incriminating material nor had any correlation with AYs 2004-05 and 2005-06. The court emphasised that the primary condition for initiating proceedings under Section 153C is that the seized material must pertain to undisclosed income relevant to the assessment years under question.

The court further observed that the procedural amendments introduced in 2015 did not change the fundamental requirement that Section 153C proceedings must be based on material that has a bearing on undisclosed income. Even under the unamended law, the AO of the non-searched entity was required to evaluate whether the seized material warranted reassessment. The High Court held that mechanically triggering reassessment under Section 153C without establishing a nexus between the seized document and the assessment years in question was impermissible.

The provisional balance sheet in question could not be considered incriminating material relevant to AYs 2004-05 and 2005-06, and therefore, reassessment was not justified.

Accordingly, the tribunal was justified in annulling the assessment undertaken.

List of Cases Reviewed

• Commissioner of Income Tax v. RRJ Securities Ltd. 2015 SCC OnLine Del 13085 [Para 15] – followed.

List of Cases Referred to

• ITO v. Vikram Sujitkumar Bhatia 2023 SCC OnLine SC 370 (para 7)
• CIT v. Sinhgad Technical Education Society (2018) 11 SCC 490 (para 12)
• SSP Aviation Limited v. Dy. CIT 2012 SCC OnLine Del 1898 (para 13).