2012 (5) TMI 294 - AT - Income Tax

Search and Seizure - block assessment - authorization u/s 132A - Held that - action under section 153C of the Act was initiated on the basis of information received by the Additional CIT, Range IV, Kanpur on 22.12.2004 which is not permissible under the law. The right course available with the Revenue if they intends to initiate action on the basis of information received from some person, they could initiate action under section 153A of the Act requiring the assessee to furnish the requisite information, but action under section 153C of the Act is not permissible under the law. Therefore, we are of the considered opinion that action initiated by the Assessing Officer under section 153C of the Act by issuing notice under section 153C read with section 153A of the Act is not sustainable in the eyes of law.

Summary

Issues Involved:
1. Validity of assessment under section 153A read with section 153C of the Income-tax Act, 1961.
2. Addition of share application money under section 68 of the Act.
3. Disallowance of expenses under various heads.

Issue-wise Detailed Analysis:

1. Validity of Assessment under Section 153A read with Section 153C:

The primary issue in these appeals is the validity of the assessment framed consequent to the notice issued under section 153A read with section 153C of the Income-tax Act, 1961. The assessee argued that the initiation of proceedings under section 153C read with section 153A was invalid as there was no requisite satisfaction recorded by the Assessing Officer of the searched parties before handing over the relevant materials to the Assessing Officer having jurisdiction over the assessee. The Tribunal noted that the search was conducted by the Central Excise Department on M/s Chandra Kamal Corporation and M/s Virat Overseas Pvt. Ltd., and documents were seized. However, no material was received by the Assessing Officer having jurisdiction over the assessee from the Assessing Officer of the searched parties after valid satisfaction recorded by him.

The Tribunal emphasized that for initiating action under section 153C, there must be a satisfaction recorded by the Assessing Officer having jurisdiction over the searched party that the seized material pertains to the assessee. It was found that no such satisfaction was recorded, and the proceedings under section 153C were initiated based on a letter received by the Additional CIT. The Tribunal held that without initiating action under section 153A upon the searched party, action under section 153C cannot be initiated upon another person. Consequently, the assessment framed under section 153C read with section 153A was not sustainable in the eyes of law and was knocked down.

2. Addition of Share Application Money under Section 68:

On the merits of the case, the Tribunal addressed the addition of Rs.51,70,000 made under section 68 of the Act, which pertains to the share application money received by the assessee. The assessee placed heavy reliance on the judgment of the Hon'ble Supreme Court in the case of CIT v. Lovely Exports Pvt. Ltd., where it was held that if the share application money is received from alleged bogus shareholders whose names are given to the Assessing Officer, the Department is free to reopen their individual assessments but cannot add the same in the hands of the assessee-company. The Tribunal agreed with this view and deleted the additions made by the Assessing Officer and confirmed by the CIT(A) on account of share application money.

3. Disallowance of Expenses under Various Heads:

In ITA No.93/LKW/2011, an additional ground was raised regarding the disallowance of expenses aggregating to Rs.1,62,000 under various heads. No argument was raised by the assessee's counsel on this issue. The Tribunal carefully perused the order of the CIT(A) and found no infirmity therein, thus confirming the disallowance of expenses.

Conclusion:

In conclusion, the Tribunal allowed the appeal of the assessee in ITA No.92/LKW/2011 by knocking down the assessment framed under section 153C read with section 153A and deleting the additions made on account of share application money. In ITA No.93/LKW/2011, the Tribunal partly allowed the appeal by confirming the disallowance of expenses while deciding other issues in favor of the assessee.