2011 (4) TMI 871 - AT - Income Tax

Enhancement of assessment by Commissioner - Search and seizure - validity of the notice issued issued u/s 153C - Held that - The documents in question are neither the incriminating ones nor unaccounted transactions of the assessee and nor they relate to the impugned four AYs. In such circumstances, the AO not only assumed jurisdiction invalidly but also erred in disturbing the settled and completed assessments. AO totally missed the requirements of the law ie only the AY with the pending assessments and the AY with the AY specific incriminating documents/transactions or seized asset should only be reopened under the provisions of the first proviso to section 153A of the Act and not otherwis. Accordingly, AO should not assume jurisdiction in respect of such AYs in the absence of any incriminating information or transactions specific to any of the impugned four AYs ie 2000-01 to 2003-04. It is necessary for the Assessing Officer of the appellant to inform about the satisfaction so recorded as well as to provide the copies of the seized documents and the appellant must be given a reasonable opportunity to object to the same - Neither the documents mentioned in the said satisfaction note stated to be belonging to the appellant have been provided to the appellant with due certification thereon - In absence of any seizure of any asset, documents etc proceeding cannot be initiated against the appellant u/s. 153C(1) r.w.s 153 It is the settled position of the law based on the decision of the Tribunal in the case of LMJ International (2007 (12) TMI 237 - ITAT CALCUTTA-E) that the issue of notice under the provisions of the first proviso to section 153A(1) is not automatic and there is need for AY-Specific Incriminating Information (ASII) in the possession of the AO to be the fountain head for springing satisfaction to him that there exists some income or asset to be assessed in the hands of any other person, who are referred to in section 153C - it is evident that the where nothing AY and assessee specific incriminating money, jewellery or other valuable article or thing or books of account or documents , the assessments for assessee years cannot be distributed - in favour of assessee.

Issues Involved:
1. Validity of the notice issued under Section 153C of the Income Tax Act.
2. Enhancement of assessment by CIT(A) without issuing mandatory notice under Section 251(2).
3. Treatment of acquisition of shares in a cooperative bank.
4. Disallowance under Section 40A(3) for treating revenue expenditure as capital expenditure.
5. Treatment of donations received towards trust corpus as revenue income.
6. Addition under Section 36(1)(va) for delay in payment of employees' share of provident fund.
7. Disallowance of prior period expenditure.
8. Disallowance of donations paid.

Detailed Analysis:

1. Validity of the Notice Issued Under Section 153C:
The primary issue discussed was the validity of the notice issued under Section 153C. The Tribunal examined the reasons recorded by the Assessing Officer (AO) and found that the documents seized did not contain any incriminating information relevant to the assessment years under consideration (2000-01 to 2003-04). The Tribunal emphasized that the AO must have "AY-Specific Incriminating Information" (ASII) to reopen assessments for the six preceding years. The Tribunal cited several legal precedents, including the case of Kumar Company, which stated that the AO cannot assume jurisdiction under Section 153C without incriminating documents for the specific assessment years. Consequently, the notices issued for the assessment years 2000-01 to 2003-04 were deemed invalid.

2. Enhancement of Assessment by CIT(A) Without Issuing Mandatory Notice Under Section 251(2):
The appellant argued that the CIT(A) enhanced the assessment without issuing the mandatory notice required under Section 251(2). The Tribunal noted that the CIT(A) must provide a notice to the assessee before enhancing the assessment on grounds not considered by the AO. The Tribunal found that the CIT(A) did not follow this procedure, rendering the enhancement invalid.

3. Treatment of Acquisition of Shares in a Cooperative Bank:
The appellant contested the CIT(A)'s decision to treat the acquisition of shares in a cooperative bank as a contravention of Section 13(1)(d)(i). The appellant argued that the acquisition was a pre-condition for availing a loan and not an investment or deposit. The Tribunal agreed with the appellant, stating that the acquisition was necessary for obtaining the loan and should not be treated as an investment or deposit.

4. Disallowance Under Section 40A(3) for Treating Revenue Expenditure as Capital Expenditure:
The appellant challenged the disallowance of Rs. 15,130 under Section 40A(3) and the treatment of revenue expenditure as capital expenditure. The Tribunal found that the CIT(A) erred in sustaining this disallowance, as the expenditure in question was revenue in nature and should not have been treated as capital expenditure.

5. Treatment of Donations Received Towards Trust Corpus as Revenue Income:
The appellant argued that the CIT(A) incorrectly treated donations received towards the trust corpus as revenue income. The Tribunal noted that donations received towards the trust corpus are capital receipts and should not be treated as revenue income. The Tribunal ruled in favor of the appellant on this ground.

6. Addition Under Section 36(1)(va) for Delay in Payment of Employees' Share of Provident Fund:
The appellant contested the addition of Rs. 4,43,012 made by the special auditors under Section 36(1)(va) for the delay in payment of employees' share of provident fund. The Tribunal found that the CIT(A) erred in sustaining this addition, as the delay was not significant and did not warrant such a disallowance.

7. Disallowance of Prior Period Expenditure:
The appellant challenged the disallowance of Rs. 51,505 on account of prior period expenditure. The Tribunal found that the CIT(A) erred in sustaining this disallowance, as the expenses materialized in the context of their liability in the year under consideration.

8. Disallowance of Donations Paid:
The appellant argued against the disallowance of Rs. 50,000 on account of donations paid. The Tribunal found that the CIT(A) erred in sustaining this disallowance, as the donations were made for charitable purposes and should not have been disallowed.

Conclusion:
The Tribunal allowed the appeals of the assessee on the additional ground regarding the validity of the notices issued under Section 153C. Consequently, the adjudication of the grounds relating to the merits of the additions was deemed academic, and those grounds were dismissed. The Tribunal's order was pronounced in the open court on January 28, 2011.

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