2010 (4) TMI 922 - AT - Income Tax

Validity of Assessment u/s 153C - addition of unexplained cash balance for want of proof - as argued satisfaction as required u/s 153C was not recorded - absence of requisite satisfaction for invoking the provisions of section 153C - HELD THAT - The notice obviously does not speak of any satisfaction at all. As already mentioned by us, the order sheet entries would not be sufficient to hold that the Assessing Officer was satisfied on any items of the nature mentioned in section 153C of the Act, to belong to the assessee. On the date of recording of the so-called satisfaction, viz, November 21, 2005, the assessee had already filed revised returns disclosing such deposits as its income and taxes due thereon stood paid. No doubt, the satisfaction need not be specifically stated in so many terms, but it should be discernible from the recordings made by the AO. We are therefore of the opinion that CIT(A) rightly held the satisfaction required under section 153C was never reached or recorded. We are persuaded to agree that once there is no proper assumption of jurisdiction, an assessment made pursuant to such proceedings would have to be annulled. Though we hold that assessment stands quashed, in line with the decision of Shelly Products 2003 (5) TMI 4 - SUPREME COURT we have to add that the assessee would be entitled to a refund only of the amount of tax paid, in excess of the tax due by him, on the basis of the income disclosed in his return. Appeal of the Revenue is dismissed. Levy of penalty - As we have already upheld the order of the Commissioner of Income-tax (Appeals) and quashed the assessment made on the assessee under section 153C read with section 143(3) of the Act for the impugned assessment year. Therefore the substratum for the levy of penalty has disappeared. Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of assessment under Section 153C of the Income-tax Act, 1961.
2. Recording of requisite satisfaction for invoking Section 153C.
3. Comparison of Sections 153C and 158BD.
4. Legitimacy of penalty levied on the assessee.

Detailed Analysis:

1. Validity of Assessment under Section 153C:
The primary issue was whether the assessment made under Section 153C read with Section 143(3) of the Income-tax Act, 1961, was valid. The Commissioner of Income-tax (Appeals) held that the required satisfaction under Section 153C was not recorded, making the addition in the assessment order unsustainable. The Revenue contested this, arguing that the Assessing Officer (AO) had recorded the necessary satisfaction and that the jurisdictional requirements were met.

2. Recording of Requisite Satisfaction for Invoking Section 153C:
The assessee argued that there was an absence of requisite satisfaction for invoking Section 153C. The Commissioner of Income-tax (Appeals) agreed, noting that the AO did not record satisfaction with reference to materials assessed. The AO's order sheet dated November 21, 2005, was scrutinized, revealing that the deposits were already declared and taxes paid by the assessee in the revised return for the assessment year 2004-05. Therefore, the AO's satisfaction recorded on November 21, 2005, was factually incorrect and unsupported by any seized materials. Consequently, the Commissioner of Income-tax (Appeals) deleted the additions made in the assessment.

3. Comparison of Sections 153C and 158BD:
The Revenue argued that the satisfaction required under Section 153C should not be equated with that under Section 158BD, emphasizing differences in the assessment procedures post-May 31, 2003. However, the Commissioner of Income-tax (Appeals) and the Tribunal found that both sections required the AO to be satisfied about the existence of undisclosed income or assets belonging to a person other than the one searched. The Tribunal noted that the satisfaction recorded in the order sheet did not mention any seized items belonging to the assessee, thus failing to meet the requirements of Section 153C. The Tribunal upheld the Commissioner of Income-tax (Appeals)'s decision, emphasizing that the satisfaction must be discernible from the AO's recordings.

4. Legitimacy of Penalty Levied on the Assessee:
Since the assessment under Section 153C was quashed, the basis for the penalty also disappeared. The Tribunal quashed the penalty, noting that without a valid assessment, the penalty could not stand.

Conclusion:
The appeal of the Revenue was dismissed, and the cross-objection of the assessee was allowed. The Tribunal quashed the assessment made under Section 153C read with Section 143(3) and annulled the penalty levied on the assessee. The assessee was entitled to a refund of any excess tax paid based on the income disclosed in the return.