2007 (11) TMI 443 - AT - Income Tax

Jurisdiction of Assessing Officer - Proceedings Initiated u/s 153A r/w section 153C - Undisclosed income - Search and seizure - receipt of huge cash loans found - HELD THAT - It is nowhere stated that these books of account or documents showed that all the transactions belonging to the assessee. The books of account or documents seized during the course of search have a close association with the group concern of Shri Reddy. It records the transaction carried out by that group. It does not record the transaction carried out by the assessee. In the instant case, documents or books of account found during the course of search and seized cannot be termed, to be indicating any limited interest of the ownership of the assessee in such books of account or documents. The language used in section 153C is materially different from the language used under section 158BD. As per section 158BD, if any undisclosed income relates to other person, then action against such other person can be taken provided such undisclosed income is referable to the document seized during the course of search. However, section 153C says that if valuable or books of account or documents belonging to other persons are seized then action under section 153C can be taken against that person. In the instant case, we are satisfied that books of account or documents do not belong to the assessee and, therefore, the Assessing Officer was not justified in initiating action under section 153A read with section 153C of the Income-tax Act. The Assessing Officer is free to take proper remedial measure as per law. In the result, the appeals filed by the assessee are allowed. Since, we are holding that Assessing Officer was not having jurisdiction to assess under section 153A read with section 153C, therefore, we are not deciding the issue on merits, so as to preempt any finding on merits in respect of the issues to be taken by the Assessing Officer in case recourse is taken for remedial measure if any.

Summary

Issues:
1. Validity of assessment under section 153C of the Income-tax Act.
2. Jurisdiction to assess under section 153A read with section 153C.

Issue 1 - Validity of assessment under section 153C of the Income-tax Act:
The case involved an appeal against the order of the CIT(A) regarding the validity of the assessment under section 153C of the Income-tax Act. A search conducted on the premises of a managing director revealed transactions related to cash loans, including those from the appellant. The appellant claimed that the loans were given from a trust fund. The Assessing Officer initiated proceedings under section 153C, alleging that the appellant's entries in the books of account were valuable and belonged to him. The Departmental Representative argued that the entries showed loans from the appellant, justifying the assessment under section 153C. However, the Tribunal found that the books of account seized did not belong to the appellant, as they were related to the group concerns of the managing director. The Tribunal emphasized that the term "belonging" implied a more intimate connection over time, which was lacking in this case. It was concluded that the Assessing Officer was not justified in initiating action under section 153C, as the seized documents did not indicate any ownership interest of the appellant.

Issue 2 - Jurisdiction to assess under section 153A read with section 153C:
The appellant raised a ground of appeal denying liability to be assessed under section 153A read with section 153C of the Income-tax Act. The Tribunal noted that the search was conducted on the managing director's premises, not the appellant's, and held that the Tribunal lacked jurisdiction to challenge the legality of the search. The Departmental Representative argued that the search revealed undisclosed income related to the appellant, justifying the assessment under section 153C. However, the Tribunal found that the books of account seized did not belong to the appellant, leading to the conclusion that the Assessing Officer lacked jurisdiction to assess under section 153A read with section 153C. The Tribunal allowed the appeals filed by the appellant, emphasizing that the Assessing Officer could take proper remedial measures as per the law, without deciding on the merits of the issues preemptively.

In conclusion, the judgment by the Appellate Tribunal ITAT Bangalore addressed the issues of the validity of assessment under section 153C and jurisdiction to assess under section 153A read with section 153C of the Income-tax Act. The Tribunal ruled in favor of the appellant, highlighting that the seized documents did not establish ownership or a connection with the appellant, leading to the Assessing Officer lacking jurisdiction for the assessments. The decision emphasized the importance of ownership and association in determining jurisdiction under the relevant sections of the Income-tax Act.