2015 (3) TMI 607 - AT - Income Tax

Validity of the initiation of proceedings u/s 153C - whether in absence of any incriminating seized document in the case of respondents, assessment framed u/s. 153C of the I.T Act for the year under consideration, is time barred, bad in law and deserve to be quashed? - Held that - Since the facts of the present case are identical to the facts involved in the case of M/s Tanvir Collections Pvt. Ltd. Vs ACIT wherin 2015 (3) TMI 345 - ITAT DELHI wherein held that the AO did not record any satisfaction that some money, bullion, jewellery or books of accounts or other documents found from these persons belonged to the assessee. The absence of such satisfaction, in our considered opinion, failed to confer any valid and lawful jurisdiction on the AO of the assessee to proceed with the matter of the assessment u/s 153C of the Act. - Decided in favour of assessee.

Issues Involved:

1. Validity of initiation of proceedings under Section 153C of the Income Tax Act.
2. Jurisdictional challenges and time-barred assessments.
3. Legality of ex-parte assessments and issuance of statutory notices.
4. Assessment of income in the hands of individuals versus HUF.
5. Treatment of seized documents and their relevance to assessments.
6. Rejection of audited accounts and Tax Audit Report.
7. Consideration of remand reports and additional evidence.
8. Right to cross-examine witnesses and use of statements without providing copies.

Detailed Analysis:

1. Validity of Initiation of Proceedings under Section 153C of the Income Tax Act:
The assessee challenged the validity of the assessment order passed under Section 153C on the grounds of jurisdiction. The search operation conducted on 20.10.2008 led to the seizure of certain incriminating documents belonging to the assessee. The proceedings under Section 153C read with Section 153A were initiated based on these documents. The assessee contended that the assessment was time-barred and should be restricted to the seized documents. The CIT(A) upheld the applicability of Section 153C but provided partial relief on quantum addition.

2. Jurisdictional Challenges and Time-barred Assessments:
The assessee argued that the proceedings were beyond the six-year period prior to the date of recording satisfaction under Section 153C, making the assessment time-barred. The CIT(A) noted that documents belonging to the assessee were seized during the search, thus invoking Section 153C. However, the Tribunal referred to a similar case (M/s Tanvir Collections Pvt. Ltd.) where the absence of satisfaction recorded by the AO of the person searched rendered the proceedings void ab initio. Following this precedent, the Tribunal ruled in favor of the assessee, setting aside the initiation of proceedings under Section 153C.

3. Legality of Ex-parte Assessments and Issuance of Statutory Notices:
The assessee contended that the AO made an ex-parte assessment under Section 144 without issuing a proper statutory notice under Section 143(2). The Tribunal found that the AO did not follow the correct procedure for serving notices, which violated principles of natural justice. Consequently, the ex-parte assessment was deemed improper.

4. Assessment of Income in the Hands of Individuals versus HUF:
The assessee argued that the AO wrongly assessed the income of M/s. Mohan Lal & Sons (HUF) in the hands of individuals, Ms. Arti Chadha and Ms. Puja Chadha, despite the HUF ceasing to exist. The Tribunal agreed, noting the absence of male members in the family, and quashed the assessment framed in the hands of individuals.

5. Treatment of Seized Documents and Their Relevance to Assessments:
The assessee maintained that the assessment under Section 153C should be limited to the seized documents. The Tribunal observed that the AO did not establish the relevance of the seized documents to the assessee's assessment. Following the precedent set in similar cases, the Tribunal ruled that the absence of incriminating documents invalidated the proceedings under Section 153C.

6. Rejection of Audited Accounts and Tax Audit Report:
The AO rejected the audited accounts and Tax Audit Report without any incriminating evidence. The Tribunal found this rejection baseless and against the principles of natural justice. The CIT(A)'s reliance on these books for calculating the peak of financial transactions was also questioned.

7. Consideration of Remand Reports and Additional Evidence:
The assessee argued that the CIT(A) ignored the remand report, explanations, and additional evidence provided. The Tribunal noted that the CIT(A) did not properly consider these materials, leading to an unjustified addition.

8. Right to Cross-examine Witnesses and Use of Statements without Providing Copies:
The assessee contended that the AO used statements from various persons without providing copies or an opportunity to cross-examine. The Tribunal found this practice against the principles of natural justice and ruled in favor of the assessee.

Conclusion:
The Tribunal, following precedents and considering the lack of proper jurisdictional satisfaction and procedural lapses, allowed the assessee's cross-objections and dismissed the department's appeals. The assessments under Section 153C were set aside as void ab initio for the relevant assessment years.

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