2016 (6) TMI 1160 - AT - Income Tax

Error in framing the assessment u/s 143(3) relying on documents seized in a search on a third party without satisfaction u/s 153C and without issue of notice u/s Section 153A - Held that - Impugned documents were found during the course of search on third party, which has been received by the ld. AO. Now ld. AO is duty bound to record his satisfaction about seized documents having bearing on the income of the assessee. After that, he has to proceed to assess the income of the assessee according to section 153A of the Income tax Act.The Assessing officer is empowered to assess six assessment years immediately preceding the assessment year relevant to the previous years in which search takes place. In this case, Search was conducted on 20-10-2008, previous year is F Y 2008-09 and AY 2009-10, and therefore impugned assessment year is outside the purview of section 153A of the Act. In view of this the additional ground raised by the Appellant with respect to applicability of section 153C and all other consequent issues are rejected and assessment u/s 143(3) in the present case is upheld. Therefore, additional ground of appeal of the appellant is dismissed. Above documents are not seized from the premises of the assessee but at the premises of third party who is neither the director nor the shareholder of the company. However neither the ld. AO as well as The Ld. CIT (A) has led any evidence that though the paper shows the names of the appellant along with two other companies but these papers are found from the third party i.e. Shri B K Dhingra and how is he associated with the appellant. Ld. CIT (A) has stated that Shri B K Dhingra is a close associate of Shri I M Thapar . Merely an assertion that somebody is close to one of the director cannot become the close associate of the appellant company itself. Ld. AO has not led any evidence that Shri Dhingra looks after the affairs of the company in any manner. the evidence of actual transaction of those parties and it is unaccounted income of these companies. It is the allegation of the revenue that these companies are the bogus companies floated by one Shri B K Dhingra and they are used for capital formation activities. This fact merely remains a conjecture and surmises in absence of any evidences led by revenue against that person i.e. Shri B K Dhingra and his connection with the appellant company. Merely making an assertion that Shri B K Dhingra is entry operator or the companies are formed for capital formation remains unsubstantiated allegation unless there are any evidences such as assessment orders etc of entry operator or the assessment orders of those companies operated by him. CIT (A) has held that details mentioned in the chart are not projections but actual transactions. This assertion of Ld. CIT (A) is also not supported by evidences because in those circumstances the cheques issued by those companies should have been reflected in the bank statements of the appellant companies. It is unassailed that these cheques have never been credited in the bank account of the appellant company.

Issues Involved:
1. Legality of the assessment order under section 143(3) versus section 153C.
2. Merits of the addition of ?1,40,78,000/- based on seized documents.

Issue-wise Detailed Analysis:

1. Legality of the Assessment Order:

The assessee challenged the legality of the assessment order framed under section 143(3) instead of section 153C. The assessee argued that the documents used for the assessment were seized from a third party during a search, and therefore, the assessment should have been conducted under section 153C with the issuance of notice under section 153A. The Departmental Representative opposed this, stating that the assessee did not raise this issue before the lower authorities and thus it should not be admitted at this stage. The Tribunal admitted the additional ground as it was purely legal and did not require further facts.

Upon examination, the Tribunal found that the assessment was correctly framed under section 143(3). The Tribunal noted that the documents were seized from a third party and the AO was required to record satisfaction that the documents had a bearing on the income of the assessee. However, since the assessment year in question (2009-10) was outside the purview of section 153A, the Tribunal upheld the assessment under section 143(3) and dismissed the additional ground of appeal.

2. Merits of the Addition:

The assessee contested the addition of ?1,40,78,000/- made by the AO based on a chart and cheque book counterfoils seized from a third party, Mr. B.K. Dhingra. The AO added this amount as unexplained cash credit, which was confirmed by the CIT(A). The assessee argued that the seized documents did not pertain to them and that no actual transactions took place as confirmed by the parties listed in the chart. The assessee also submitted that there was no project in existence at the time for which the alleged bookings were made.

The Tribunal analyzed the seized documents and found several discrepancies:

- The documents were seized from a third party with no proven connection to the assessee.
- No corroborative evidence was found during the survey at the assessee's premises.
- The cheques listed in the counterfoils were never credited to the assessee's bank account.
- The confirmations from the parties listed in the chart were not properly examined by the AO.
- The project mentioned in the chart was not in existence during the assessment year.
- The presumption under section 292C did not apply as the documents were not found in the possession of the assessee.

Based on these findings, the Tribunal concluded that the addition was not justified. The Tribunal reversed the CIT(A)'s decision and allowed the assessee's appeal on this ground, thereby deleting the addition of ?1,40,78,000/-.

Conclusion:

The Tribunal dismissed the additional legal ground regarding the applicability of section 153C but allowed the appeal on the merits, resulting in the deletion of the addition of ?1,40,78,000/-. The final order was pronounced on 13/06/2016.

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