2011 (9) TMI 804 - AT - Income Tax

Legality of jurisdiction u/s 153C - assessee contended that notice issued u/s 153C r.w.s. 153A is invalid on ground that no satisfaction had been recorded in the case of the present assessee - Held that - Once the Assessing Officer himself has accepted that the recording of reasons is not a pre-condition for action u/s 153C and has accepted that the points are noted for the sake of ready reference and appropriate action, obviously cannot be treated as reasons recorded. Supreme Court in case of Manish Maheshwari () has categorically held that the satisfaction is to be recorded. Hence, notice issued u/s 153C r.w.s. 153A is liable to be held as invalid - Decided against the Revenue. Additions made on account of inadequacy of drawings - Held that - Once it is accepted that the assessee is staying with the joint family, obviously the drawings of all the family members would have to be considered and as it is noticed that the drawings of all family members put together are more than the estimate made by the Assessing Officer, we are of the view that the deletion of the same by CIT(A) is on a right footing. Addition on account of the difference between the Balance Sheet filed along with the return and the Balance Sheet found in the course of the search - return filed late in reponse to notice issued u/s 153A - Held that - Return filed late by the assessee in response to the notice u/s 153C read with section 153A is an invalid return and the same cannot be rescued to be treated as a valid return, this comparison itself would fail. Accepting that the return filed can be considered as information, still as the investments shown in the Balance Sheet seized being higher, no addition on this count can be made because there is no Balance Sheet which is filed and which can be considered for making the addition. All the additions made on the basis of the comparison with such invalid return stand deleted - Decided against the Revenue.

Issues Involved:
1. Assumption of jurisdiction under section 153C of the Income-tax Act, 1961.
2. Validity of the notice issued under section 153C read with section 153A.
3. Additions on account of inadequacy of drawings.
4. Additions based on differences between Balance Sheets found during the search and those filed with returns.
5. Agricultural income claims.
6. Validity of returns filed beyond the specified time.

Detailed Analysis:

1. Assumption of Jurisdiction under Section 153C:
The cross objections filed by the assessee challenged the jurisdiction under section 153C of the Income-tax Act, 1961. The assessee argued that the satisfaction for initiating proceedings under section 153C was not recorded, making the notice invalid. The Revenue countered that the note sheets indicated the Assessing Officer's satisfaction. However, the Tribunal found that the Assessing Officer's notes explicitly stated that recording reasons was not a pre-condition for action under section 153C, which contradicted the requirement established by the Supreme Court in Manish Maheshwari v. Asstt. CIT. Consequently, the Tribunal held the notice issued under section 153C read with section 153A as invalid, annulling the assessments for the years 2000-01, 2003-04, and 2004-05.

2. Validity of the Notice Issued under Section 153C Read with Section 153A:
The Tribunal emphasized that the recording of satisfaction is crucial for initiating proceedings under section 153C. In the absence of such satisfaction in both the searched person's case and the assessee's case, the notice was deemed invalid. This principle is consistent with the Supreme Court's ruling in Manish Maheshwari.

3. Additions on Account of Inadequacy of Drawings:
The Revenue appealed against the CIT(A)'s order deleting additions made for inadequate drawings. The Tribunal upheld the CIT(A)'s decision, referencing a co-ordinate Bench's decision in the case of Smt. P. Easwari, which stated that the aggregate drawings of all family members should be considered. Given the assessee's joint family status, the Tribunal found no grounds to interfere with the CIT(A)'s deletion of the additions.

4. Additions Based on Differences Between Balance Sheets:
The Revenue argued that the Balance Sheets found during the search should be presumed accurate under section 132(4A) read with section 292C. The Tribunal agreed that the Balance Sheets found during the search are presumed true but noted that the return filed by the assessee in response to the notice was invalid due to late filing. Consequently, the comparison between the Balance Sheets found during the search and those filed with the returns was not valid for making additions. The Tribunal deleted the additions based on this comparison.

5. Agricultural Income Claims:
The issue of agricultural income was relevant only for the assessment years 2000-01, 2003-04, and 2004-05. Since the Tribunal annulled the assessments for these years, this issue did not require further adjudication.

6. Validity of Returns Filed Beyond the Specified Time:
The Tribunal held that the return filed beyond the specified time in the notice under section 153C read with section 153A is invalid. The Assessing Officer does not have the authority to condone the delay in filing such returns. Therefore, any additions based on comparisons with these invalid returns were deleted. However, the income returned by the assessee for these years was confirmed under the proviso to section 240 of the Act.

Conclusion:
The Tribunal dismissed the cross objections filed by the assessee due to limitation. The appeals filed by the assessee for the assessment years 2000-01, 2003-04, and 2004-05 were allowed, annulling the assessments for these years. The Revenue's appeals for these years were dismissed as infructuous. For the assessment years 1999-2000, 2001-02, 2002-03, and 2005-06, the Tribunal partly allowed the Revenue's appeals, confirming the income returned by the assessee but deleting other additions based on invalid returns.

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