2010 (12) TMI 1207 - AT - Income Tax

Assumption of jurisdiction and framing of assessment by the Assessing Officer u/s 153C - satisfaction - notice issued u/s 143(2) prior to filing of return in response to notice u/s 153-C - Mandatory conditions - unexplained bogus Purchase u/s 69C - rejection of books of account - depreciation of Wind Mill - HELD THAT - The legal requirement of recording of such satisfaction cannot be substituted by appraisal note which is prepared by the search party after completion of search insofar as such appraisal note is a secret document prepared by the department for their internal use contents of which are not conveyed to the assessee nor its copy is supplied to the assessee even on making a written request. The appraisal note so prepared by the department is meant to monitor after the search proceedings are over so as to ensure exhaustive assessment of all searched person with respect to their correct income and to plan a strategy for further deep inquiry and investigation of documents found during the course of search. Since copy of such appraisal note is not supplied to the assessee it cannot be taken at par with the requirement of recording of satisfaction note as stipulated u/s 153C of the Act which is a mandatory requirement. What is the legislative intent of such satisfaction and in what manner it should be recorded has been dealt with in the judicial pronouncements in the cases of Manish Mahehwari 2007 (2) TMI 148 - SUPREME COURT and G.K. Drive Shaft 2002 (11) TMI 7 - SUPREME COURT by the Hon ble Supreme Court. Accordingly we are not inclined to agree with the proposition that the appraisal note prepared by the department should be treated as a satisfaction note as required to be recorded in terms of section 153C of the Act so as to empower the Assessing Officer to assume jurisdiction to issue notice and thereafter frame assessment u/s 153A read with section 143(3) of the Act. Thus we do not find any infirmity in the order of the ld CIT(A) who has quashed the assessment framed u/s 153C of the Act. Further the detailed finding recorded by the ld CIT(A) with respect to recording of satisfaction has not been controverted by the department by bringing any positive material on record. We therefore do not find any infirmity in the order of the ld CIT(A) quashing the assessments framed u/s 153C of the Act in the cases of all these assesses. So far as various additions were made by the Assessing Officer on merits The findings recorded by the ld CIT(A) for partly deleting the additions on merits have not been controverted by the department we therefore do not find any reason to interfere with such finding of the ld CIT(A). Accordingly even the part of additions deleted on merit by the ld CIT(A) require no interference. As we have already upheld the order of the ld CIT(A) in entirety even for the additions/disallowance sustained by him on merits nothing was brought by the learned counsel for the assessee to our notice to persuade us to deviate from these findings of the ld CIT(A) accordingly all the grounds taken in the cross objection are also dismissed in terms of the findings recorded by the ld CIT(A). Additional ground was taken by the assessee to the effect that since no adverse material was found during the course of search u/s 132 of the Act in respect of the additions made by the Assessing Officer or otherwise therefore the assessment is bad in law and unjustified. As we have already confirmed the order of the ld CIT(A) in annulling the assessment itself framed u/s 153C of the Act we do not see any valid reason in the technical ground raised by the assessee in the form of additional ground. The same is therefore dismissed in limine. In the result all the appeals of the revenue and cross objections filed by the assessee in all the years are dismissed.

Summary

Issues Involved:
1. Legality of assessments made under Section 153C/143(3) of the Income Tax Act.
2. Requirement of recording satisfaction for issuing notice under Section 153C.
3. Validity of additions made on account of unexplained share capital, share application money, short-term capital gain, unexplained purchases, and other expenses.

Detailed Analysis:

1. Legality of Assessments Made Under Section 153C/143(3):
The appeals revolved around the legality of assessments made under Section 153C/143(3) for the assessment years 2000-01 to 2006-07. The primary contention was the absence of recorded satisfaction by the Assessing Officer (AO) before issuing notices under Section 153C. The Tribunal emphasized that the AO must record satisfaction that the seized material belongs to a person other than the searched person. The CIT(A) annulled the assessments on the ground that no such satisfaction was recorded, rendering the assessments void ab initio. The Tribunal upheld this decision, stating, "recording of satisfaction before issue of notice u/s 153C is mandatory."

2. Requirement of Recording Satisfaction for Issuing Notice Under Section 153C:
The Tribunal reiterated that the AO must record a specific objective satisfaction that the seized material belongs to a person other than the searched person. This requirement is akin to the provisions under Section 158BD, as established by the Supreme Court in Manish Maheshwari's case. The Tribunal noted, "The assumption of jurisdiction to issue notice and frame assessment under section 153C read with section 153A is acquired by the Assessing Officer only after having been satisfied and such satisfaction is recorded in writing."

3. Validity of Additions Made:
- Unexplained Share Capital and Share Application Money:
The CIT(A) deleted the additions made by the AO on account of unexplained share capital and share application money, citing Supreme Court decisions in CIT vs. Steller Investment Ltd. and CIT vs. Lovely Export (P) Ltd., which held that no addition should be made in the hands of the company if the share capital is accepted by the income tax department. The Tribunal upheld this deletion.

- Short-Term Capital Gain:
The AO's addition of Rs. 72,00,000 as short-term capital gain was deleted by the CIT(A), who found no evidence of any premium received by the assessee. The Tribunal upheld this finding, noting, "There is no evidence that the assessee received any premium as against the advance given to the gram pradhan."

- Unexplained Purchases and Other Expenses:
The CIT(A) deleted several additions made by the AO on account of unexplained purchases and other expenses, including fabrication expenses and foreign travel expenses. The Tribunal agreed with the CIT(A)'s findings that the AO's disallowances were based on flimsy grounds and lacked evidence. For instance, the Tribunal noted, "The charge of the assessing officer that the cheque payments made to the suppliers are received back in cash has no basis."

Conclusion:
The Tribunal upheld the CIT(A)'s decision to annul the assessments made under Section 153C/143(3) due to the absence of recorded satisfaction by the AO. It also upheld the deletion of various additions made by the AO on account of unexplained share capital, share application money, short-term capital gain, unexplained purchases, and other expenses. The Tribunal emphasized the mandatory requirement of recording satisfaction before issuing notices under Section 153C, aligning with the principles established by the Supreme Court in related cases.