2014 (5) TMI 109 - AT - Income Tax

Validity of assessment u/s 153C r.w. section 153A of the Act Incriminating documents - Held that - The common satisfaction was recorded by the AO for initiation of proceedings u/s 153C of the Act in respect of the 19 parties - action u/s 133A of the Act was taken at the premises of the assessee on the same date - Various documents were found and seized - Statements of various persons including Shri R.K. Miglani were also recorded u/s 132(4) / 133A of the Act - UPDA is a registered society formed by the distilleries of UP for its welfare to jointly take up their cause with various authorities on different issues - the very basis for initiation of the proceedings u/s 153C against the parties remained the incriminating documents found at the residence of Shri Miglani and also from the office of UPDA - The documents mentioned in the satisfaction note are annexure A-1, A-2, in common and B-2, B-3 in the case of the assessee - on perusal of these documents, it could not be understood as to how the case of the assessee stands on different footing than the other 18 assessees in the cases of most of whom the Tribunal on the basis of the same satisfaction note has held the proceeding initiated in those case u/s 153C as invalid - In those cases also Annexures A-1 to A-10 were the subject matter, on consideration of which the Tribunal came to the conclusion that invocation of section 153C was not valid as no incriminating documents belonging to the assesee were found. The documents were not found from the possession of the present assesee nor these are in the handwriting of the assessee or its employee(s) - These were found from the possession of Shri R.K. Miglani and UPDA, there is no evidence of any receipt or payment of cash in respect of which addition was made - The word belonging may be understood in the sense of ownership or something little lesser than ownership but of course more than mere reference of assesee on a documents found and seized from the possession of others without any corroboration - The documents noted in satisfaction to proceed u/s 153C do not make reference to any receipt or payment of cash and are not of any incriminating nature. There is no reference to any amount paid or received and as such the document is not relevant even in the context of satisfaction note recorded by the AO the documents do not belong to various parties referred to in the document the documents were not found from the possession of the assesee nor these documents are in the handwriting of the assessee or its employees the documents marked as Annexure A-1, A-2, B-2 and B-3, the subject matter of the satisfaction recorded by the AO to initiate proceedings u/s 153C against the present assessee do not belong to the assessee to justify initiation of proceedings u/s 153C of the Act against the assessee Decided in favour of Assessee.

Issues Involved:
1. Validity of the order passed by CIT(A)-XXXIII.
2. Material support for the allegation under section 153C of the Act.
3. Use of documents found in possession of a third party.
4. Evidence of undisclosed income or expenditure.
5. Fulfillment of requisites under sections 153A and 153C.
6. Reliance on third-party documents and statements without cross-examination.
7. Reliance on "dumb documents" and loose sheets.
8. Reliance on disclosures by third parties.
9. Presumptions about generation of funds for illegal payments.
10. Reliance on documents seized during action under section 133A.

Detailed Analysis:

1. Validity of the Order Passed by CIT(A)-XXXIII:
The assessee argued that the order passed by CIT(A)-XXXIII was bad in law and void ab-initio, based entirely on surmises and conjectures. The tribunal examined the validity of the assessment framed under section 153C read with section 153A of the Act, which was questioned on several grounds.

2. Material Support for the Allegation Under Section 153C of the Act:
The assessee contended that there was no material to support the allegation that the documents in question belonged to the appellant as required under section 153C of the Act. The tribunal noted that the documents seized from the residence of Shri R.K. Miglani and the office of UPDA were not in the handwriting of the assessee or its employees and were not found in the possession of the assessee.

3. Use of Documents Found in Possession of a Third Party:
The assessee argued that the assessment order was vitiated because the AO failed to appreciate that entries made in documents found in possession of a third party could not be used against the assessee to prove its undisclosed income in the absence of corroborative evidence. The tribunal agreed, stating that the documents did not belong to the assessee and were not sufficient to justify the initiation of proceedings under section 153C.

4. Evidence of Undisclosed Income or Expenditure:
The assessee contended that there was no evidence to prove that the assessee earned any undisclosed income or incurred any expenditure outside the books of accounts. The tribunal found that the documents referred to in the satisfaction note did not contain any reference to the receipt or payment of cash and were not of an incriminating nature.

5. Fulfillment of Requisites Under Sections 153A and 153C:
The assessee argued that the AO erred by passing orders using powers vested under sections 153A and 153C when the requisites of the sections were not fulfilled. The tribunal held that the satisfaction recorded by the AO was not sufficient to justify the initiation of proceedings under section 153C.

6. Reliance on Third-Party Documents and Statements Without Cross-Examination:
The assessee contended that the AO erred by relying on documents and statements of third parties without providing an opportunity to cross-examine. The tribunal agreed, noting that the documents were not found in the possession of the assessee and were not in the handwriting of the assessee or its employees.

7. Reliance on "Dumb Documents" and Loose Sheets:
The assessee argued that the AO erred by relying on "dumb documents," loose sheets, and diaries of third parties. The tribunal found that these documents were not sufficient to justify the initiation of proceedings under section 153C.

8. Reliance on Disclosures by Third Parties:
The assessee contended that the AO erred by relying on disclosures made by third parties before the ITSC and information from the laptop of Shri Ajay Agarwal of M/s. Radico Khaitan. The tribunal held that these disclosures were not sufficient to justify the initiation of proceedings under section 153C.

9. Presumptions About Generation of Funds for Illegal Payments:
The assessee argued that the AO erred by presuming that the generation of funds for illegal payments was done by inflating transport charges and debiting bogus bills. The tribunal found that these presumptions were not supported by the documents seized or the records of the assessee.

10. Reliance on Documents Seized During Action Under Section 133A:
The assessee contended that the AO erred by relying on documents seized during the course of action under section 133A from the assessee's premises. The tribunal held that these documents did not demonstrate that the payments alleged were made and did not tally with the documents seized from Shri R.K. Miglani, UPDA, or M/s. Radico Khaitan.

Conclusion:
The tribunal concluded that the documents referred to in the satisfaction note did not belong to the assessee and were not sufficient to justify the initiation of proceedings under section 153C. Consequently, the assessment orders were quashed, and the appeals preferred by the assessee were allowed, while those preferred by the revenue were rejected.

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