2015 (8) TMI 710 - AT - Income Tax

Validity of assessment proceedings u/s. 153C - Assessment of income of any other person - Held that - On a reading of Section 153A and 153C the exercise that is required to be done by the AO has been spelt out by the Coordinate Bench of this Tribunal in the case of DSL Properties Pvt. Ltd. Vs. DCIT 2013 (9) TMI 123 - ITAT DELHI has held that if the Assessing Officer is assessing the person searched as well as other person whose assets, books of account or documents were found at the time of search, then also, first while making the assessment in the case of the person searched, he has to record the satisfaction that the money bullion, jewellery or other valuable article or thing or books of account or documents belonged to the person other than the person searched. Then the copy of this satisfaction note is to be placed in the file of such other person and the relevant document should also be transferred from the file of the person searched to the file of such other person. Thereafter, in the capacity of the Assessing Officer of such other person, he has to issue the notice u/s 153A read with section 153C. The Assessing Officer of the searched person and such other person may be the same but these are two different assessees and therefore the Assessing Officer has to carry out the dual exercise first as the Assessing Officer of the person searched in which he has to record the satisfaction, during the course of assessment order proceedings of the person searched. We concur with the said view of the coordinate Bench and would like to add that this satisfaction must be an objective satisfaction based on an enquiry by the AO to establish that the documents referred to in section 153C which is found during the search u/s. 132, which are seized or requisitioned belongs to a person other than the person searched; and there should be a clear finding to that effect based on which only satisfaction as envisaged u/s. 153C can be inferred. Such a finding by the AO is required for attaining the said satisfaction and then it should be recorded in the file of the assessee which is a sine-qua-non to trigger the jurisdiction for the AO to proceed against such other person. In this case this exercise of recording the satisfaction during the assessment proceedings of the person searched has not been carried out and the satisfaction does not satisfy the requirement of Section 153C. We could not find any mention of any seized materials like valuable articles or things or any books of account or documents have been referred even in the impugned assessment orders. The AO lacks jurisdiction to initiate proceedings u/s. 153C against the assessee and therefore, the issuance of notice itself is null and void and therefore quashed. Consequently, the impugned assessment order passed u/s. 153C is also a nullity. - Decided in favour of assessee.

Issues Involved:
1. Legality of the notice and assessment order issued under section 153C of the Income Tax Act.
2. Validity of additions made under section 69C for unexplained purchases.
3. Validity of disallowance of expenses claimed by the assessee.
4. Jurisdictional requirement for recording satisfaction under section 153C.
5. Compliance with statutory procedures under section 153C.
6. Sufficiency of evidence for purchases, sales, and expenses claimed.
7. Opportunity to cross-examine witnesses.
8. Consideration of interest charged under sections 234A and 234B.

Issue-wise Detailed Analysis:

1. Legality of the Notice and Assessment Order Issued Under Section 153C:
The Tribunal examined whether the Assessing Officer (AO) had recorded the necessary satisfaction before issuing the notice under section 153C. The assessee argued that the satisfaction of the AO of the searched person was not recorded, which vitiated the entire assessment. The Tribunal found that the satisfaction note was recorded by the AO of the assessee and not by the AO of the searched person. This was held to be invalid based on precedents like *Tanveer Collections* and *IECS Solutions Pvt. Ltd.*, which require the AO of the searched person to record satisfaction. The Tribunal concluded that the absence of such satisfaction failed to confer valid jurisdiction on the AO of the assessee, rendering the assessment void ab initio.

2. Validity of Additions Made Under Section 69C for Unexplained Purchases:
The AO had disallowed Rs. 32,03,768/- under section 69C, holding the purchases unverifiable and bogus. The assessee contended that the purchases were genuine and supported by bank transactions. The Tribunal, however, did not delve into the merits of this issue due to its finding on the jurisdictional defect under section 153C.

3. Validity of Disallowance of Expenses Claimed by the Assessee:
The AO disallowed 100% of the expenses claimed by the assessee, amounting to Rs. 3,92,768/-, as unverifiable. The assessee argued that the expenses were genuine and recorded in the audited books of accounts. Like the issue of unexplained purchases, the Tribunal did not address this issue substantively due to the jurisdictional defect.

4. Jurisdictional Requirement for Recording Satisfaction Under Section 153C:
The Tribunal emphasized that recording satisfaction by the AO of the searched person is a jurisdictional fact and a sine qua non for initiating proceedings under section 153C. It cited the Supreme Court's observation in *Anil Kumar & Ors. vs. UOI & Ors.* that a jurisdictional fact must exist before an authority assumes jurisdiction. The Tribunal found that the AO of the searched person did not record the required satisfaction, making the assessment invalid.

5. Compliance with Statutory Procedures Under Section 153C:
The Tribunal noted that the statutory procedure under section 153C was not followed, as the satisfaction was not recorded by the AO of the searched person. It referred to the *Pepsico India Holiday (P) Ltd.* case, which held that the AO of the searched person must be satisfied that the seized documents do not belong to the searched person. The Tribunal found that this requirement was not met, rendering the assessment void.

6. Sufficiency of Evidence for Purchases, Sales, and Expenses Claimed:
The AO found that the assessee's purchases and sales were unverifiable and held the transactions as bogus. The assessee argued that the transactions were genuine and supported by bank records. The Tribunal did not address the sufficiency of evidence due to its finding on the jurisdictional defect.

7. Opportunity to Cross-examine Witnesses:
The assessee contended that the AO used statements from various persons without providing copies or an opportunity to cross-examine. The Tribunal did not address this issue substantively due to the jurisdictional defect under section 153C.

8. Consideration of Interest Charged Under Sections 234A and 234B:
The assessee argued that the interest charged under sections 234A and 234B was excessive and wrongly imposed. The Tribunal did not address this issue substantively due to the jurisdictional defect.

Conclusion:
The Tribunal quashed the assessment orders for all the assessment years (2003-04 to 2008-09) as void ab initio due to the lack of proper satisfaction recorded under section 153C by the AO of the searched person. Consequently, the appeals by the revenue were dismissed, and the cross objections by the assessee were allowed.

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