2015 (2) TMI 1029 - AT - Income Tax

Validity of proceedings under section 153C non recording of satisfaction by the Assessing Officer in the case of person subjected to search - Held that - Satisfaction by the Assessing Officer of the searched person was not recorded before initiating proceedings under section 153C of the Act against the assessee and the impugned issue is squarely covered by judgment of the jurisdictional High Court in CIT Vs. Classic Enterprises 2013 (4) TMI 520 - ALLAHABAD HIGH COURT . We, therefore, have no hesitation in holding that since the assessment was framed consequent to the proceedings initiated under section 153C of the Act, without recording satisfaction by the Assessing Officer of the searched person, the assessment is bad in law and deserves to be quashed. We accordingly set aside the order of the ld. CIT(A) and quash the assessment framed under section 153C read with 143(3) of the Act. - Decided in favour of assessee.

Issues Involved:
1. Validity of proceedings under Section 153C without recorded satisfaction by the Assessing Officer.
2. Validity of the assessment order dated 31.12.2010 under Section 153C read with Section 143(3).
3. Proof of investment in the purchase of a mini-truck.
4. Estimation of income from transport business.
5. Estimation of income from brokerage business.
6. Basis for making an estimate of income.
7. Compliance with facts, law, and principles of natural justice.

Issue-wise Detailed Analysis:

1. Validity of proceedings under Section 153C without recorded satisfaction by the Assessing Officer:
The primary legal contention raised by the assessee was that the proceedings under Section 153C of the Income-tax Act, 1961, were initiated without the Assessing Officer of the searched person recording any satisfaction that the incriminating documents found during the search related to the assessee. The assessee argued that this lack of recorded satisfaction rendered the assessment invalid. The Tribunal noted that the jurisdictional High Court, in the case of CIT (Central) vs. M/s Gopi Apartment, had held that recording of satisfaction by the Assessing Officer of the searched person before initiating proceedings under Section 153C is mandatory. Since the Revenue failed to provide evidence of such recorded satisfaction, the Tribunal concluded that the assessment under Section 153C was invalid and deserved to be quashed.

2. Validity of the assessment order dated 31.12.2010 under Section 153C read with Section 143(3):
The Tribunal found that the CIT(A) had erred in upholding the validity of the assessment order dated 31.12.2010, as it was passed without the mandatory recorded satisfaction by the Assessing Officer of the searched person. The Tribunal emphasized that the absence of such satisfaction rendered the assessment order invalid.

3. Proof of investment in the purchase of a mini-truck:
The assessee contended that the investment in the purchase of a mini-truck was fully proved from the income/resources available. However, the authorities below had taken a contrary view, which the assessee argued was erroneous. The Tribunal did not delve into this issue in detail, given its decision to quash the assessment on legal grounds.

4. Estimation of income from transport business:
The assessee argued that the income from the transport business, as sustained by the CIT(A) at Rs. 25,200, was excessive and based on non-consideration of the case facts. The Tribunal did not specifically address this issue due to the quashing of the assessment on legal grounds.

5. Estimation of income from brokerage business:
The assessee claimed that the income from the brokerage business, estimated at Rs. 40,000, was wrongly upheld by the CIT(A) as the assessee did not carry on such business with regularity. The Tribunal did not provide a detailed analysis of this issue, focusing instead on the legal validity of the assessment.

6. Basis for making an estimate of income:
The assessee argued that there was no basis for estimating the income at Rs. 40,000, and the addition made by the authorities was erroneous. This issue was not elaborated upon by the Tribunal, given the primary focus on the procedural invalidity of the assessment.

7. Compliance with facts, law, and principles of natural justice:
The assessee contended that the order appealed against was contrary to facts, law, and principles of natural justice. The Tribunal's decision to quash the assessment was based on the procedural requirement of recording satisfaction, aligning with the principles of natural justice.

Conclusion:
The Tribunal concluded that the assessment framed under Section 153C read with Section 143(3) was invalid due to the absence of recorded satisfaction by the Assessing Officer of the searched person. Consequently, the Tribunal set aside the order of the CIT(A) and quashed the assessment. The appeals of the assessee were allowed.

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