2015 (11) TMI 410 - HC - Income Tax

Assessment u/s 153A - Addition under Section 69C - Held that - The only document seized during the search in question was a cheque book pertaining to the Assessee which reflected issue of cheques during the period August 2008 to October 2008, relevant to the AY 2009-10. The facts and the questions of law that arise in these appeals are similar to the facts and the controversy involved in RRJ Securities Ltd. (2015 (11) TMI 19 - DELHI HIGH COURT ) as documents seized had no relevance or bearing on the income of the Assessee for the relevant assessment years and could not possibly reflect any undisclosed income. This being the undisputed position, no investigation was necessary. Thus, the provisions of section 153C, which are to enable an investigation in respect of the seized asset, could not be resorted to; the AO had no jurisdiction to make the reassessment under Section 153C of the Act - Decided in favour of the Assessee and against the Revenue.

Summary

Issues:
1. Jurisdiction of the Assessing Officer to make assessments under Section 153C of the Income Tax Act, 1961.
2. Applicability of Section 69C in the assessment proceedings.
3. Validity of the disallowance of expenses claimed by the Assessee.
4. Interpretation of the first proviso of Section 153C(1) of the Act.
5. Admissibility of the seized material in the assessment process.

Jurisdiction of the Assessing Officer under Section 153C:
The Revenue appealed a common order by the Income Tax Appellate Tribunal (ITAT) challenging the Commissioner of Income Tax (Appeals) decision partly allowing the Assessee's appeals. The Tribunal's order set aside additions to the Assessee's total income under Section 69C and disallowance of expenses by the Assessing Officer. The Assessee contested the jurisdiction of the Assessing Officer under Section 153C, arguing that no incriminating material was found during the search. The Court framed questions regarding the applicability of Section 69C and the Assessing Officer's authority to assess income under Section 153C for AYs 2003-04 to 2008-09.

Applicability of Section 69C and Disallowance of Expenses:
During assessment, the Assessee claimed all purchases were made in cash for tax-free goods and were not required to file sales tax returns. The Assessing Officer linked the case to the 'Thapar Group' cases, where concerns operated from the same address but found no operations there. Consequently, the Assessee failed to substantiate purchases, leading to additions under Section 69C. Additionally, 100% of claimed expenses were disallowed as unverifiable. However, the Commissioner of Income Tax (Appeals) ruled in favor of the Assessee, stating that Section 69C applies when the source of expenditure is unexplained, which was not the case here. The Tribunal upheld this decision, rejecting the Revenue's appeals and agreeing with the CIT(A) on the disallowance of expenses and depreciation.

Interpretation of Section 153C(1) Proviso and Seized Material:
The Assessee requested copies of seized material and contested the initiation of proceedings under Section 153C. The ACIT clarified the interpretation of the proviso of Section 153C(1). The seized material included record slips from a cheque book showing entries of cheques issued in 2008. The Court found that the only document seized was the cheque book, and as in a similar case, ruled in favor of the Assessee regarding the initiation of proceedings under Section 153C.

Conclusion:
The Court dismissed the appeals, stating that since the only seized document was a cheque book reflecting transactions for AY 2009-10, the proceedings under Section 153C could not be initiated against the Assessee for AYs 2003-04 to 2008-09. Therefore, the other questions were not examined, and each party was left to bear their own costs.

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