2018 (12) TMI 1606 - AT - Income Tax

Assessment u/s 153C - mandate of recording satisfaction - scrutiny of incriminating documents found at the residence of Shri Miglani and also from the office of UPDA reveals that illegal payments were made by various Distilleries to various public servants - Held that - AO has to firstly rule out that the books of account or documents seized do not belong to the person searched. The satisfaction note exhibited elsewhere clearly shows that nowhere it has been ruled out that the documents seized do not belong to the searched person. Once this possibility is ruled out that the seized documents do not belong to the person searched, then the officer should proceed in identifying the persons to whom such documents belong to. After identifying such other persons , books of account or documents shall be handed over to the Assessing Officer having jurisdiction over such other persons . This means that after recording satisfaction, the Assessing Officer of the searched person shall hand over the documents on as is basis. We find that in all the cases of the captioned assessees, the Assessing Officer has only supplied the photocopies of the seized documents and not the documents, per se. In our understanding of the facts, one document can belong to one person. But, in the cases in hand, we find that whatever was seized from the premises of Shri R.K. Miglani/UPDA, all the seized documents were alleged to be belonging to the captioned assessees. A perusal of the satisfaction note shows that it is highly vague and too general and is prepared in a mechanical manner and without application of mind. A perusal of the assessment order shows that the entire findings of the Assessing Officer are solely based upon the seized documents supplied by the searched party and the impugned satisfaction note. The entire assessment order is devoid of any independent verification. Revenue failed to demonstrate that the production figures were in fact, forwarded by the concerned distilleries under its letter head or some other form. It is not known why Shri R.K. Miglani or for that matter UPDA was maintaining production details of various distilleries. No doubt, production figures gathered from respective distilleries do match with the production figures mentioned in the seized documents but then it does not prove that any of the distilleries has authored the seized document. There is nothing on record brought by the Revenue to demonstrate the details of payments and the names of the payees. Considering the nature of each document relied upon by the Assessing Officer in the assessment order and supported by the ld. CIT-DR before us, it cannot be said that these documents were ever authored by any of the distilleries and, therefore, cannot be said to be belonging to them or any of them. The documents were seized from Shri R.K. Miglani or UPDA and, therefore, any presumption under the Act is against these persons and not against any of the distilleries. The concept of the term belong to has judicially been examined as discussed elsewhere, where it has been held that before a document can be held to be belonging to other persons, it must be established that he has the right of ownership on such document. Courts have held that there is a distinction between the expression belong to of a document and pertaining to or relating to a document. In our understanding, the term belongs to is not synonymous to the expression pertaining to or relating to - none of the documents referred to by the Assessing Officer belong to the captioned assessees nor it has been identified that which documents belong to which captioned assessees. In our considered opinion, the Assessing Officer has exceeded in his jurisdiction to initiate the proceedings u/s 153C of the Act. Denial of natural justice - no opportunity to cross examination - Held that - It can be seen from the above chart that the case in which the presumption was available, the Revenue accepted what was returned by Shri R.K. Miglani and on the strength of his statement that the documents seized from his premises belong to distilleries, the additions have been made as unexplained expenditure/contribution to UPDA. It is well settled that only the person competent to give evidence on the truthfulness of the contents of the document is writer thereof. So, unless and until the contents of the documents are proved against a person, the possession of the document or hand writing of that person on such document by itself cannot prove the contents of the document - thus we are of the opinion that the assessment framed u/s 153C of the Act is in gross violation of the principles of natural justice and deserve to be tagged as nullity. Assessment barred by limitation - Held that - The assessment proceedings u/s 153C were started on 11.12.2006 when the Assessing Officer received alleged satisfaction note and the documents belonging to the assessee. As per the provisions of the Act contained in section 153B(b) as stated hereinabove, the Assessing Officer had to frame assessment order by 22.03.2008, excluding the period of stay and adding the same period to nine months whereas assessment order is framed on 30.12.2008 and is, therefore, well beyond the period of limitation. In our considered opinion, when the stay got vacated on 07.05.2017 and there being no further stay only such time during which the order of the Hon ble High Court had been passed granting stay till the same was allowed can alone be excluded. DR contention that the time taken for filing the appeal by the department before the Hon ble High Court of Calcutta should also be excluded is without merit because the provision specifically provides that only that period will be excluded during which the proceedings have been stayed by the Hon ble High Court. In our considered opinion, the facts on record clearly show that the assessment order framed u/s 153C r.w.s 153A of the Act dated 30.12.2008 is barred by limitation. Since the assessment order has been held to be barred by limitation, proceedings subsequent to the happenings get vitiated. Addition u/s 68 - aforesaid receipts are unaccounted and are not reflected in the return of income filed by the assessee - Held that - We have to point out that except for the notings in the loose sheets/impounded documents, the Revenue has brought nothing on record to establish any payments made by the distillers to UPDA. Whatever a member distiller has contributed to UPDA is recorded in the regular books of account of the assessee. Preponderance of probabilities do not allow us to assume or presume non existing facts. Considering the facts in totality from all possible angles, we do not find any merit in the additions made u/s 68. Cancellation of registration u/s 12AA - Since the registration was cancelled, the assessee was assessed in the status of an AOP - addition of surplus of receipt over expenditure - Held that - Since we have already pointed out that registration u/s 12AA of the Act has been protected till 01.10.2014, therefore, the action of the ld. CIT(A) is uncalled for. We accordingly, direct the Assessing Officer to delete the addition

Summary

Issues Involved:
1. Validity of initiation of proceedings under Section 153C of the Income Tax Act, 1961.
2. Whether the documents seized from third parties can be attributed to the assessee.
3. The evidentiary value of documents seized from third parties.
4. The denial of cross-examination of a key witness.
5. The limitation period for framing assessments.
6. The applicability of the principles of mutuality and provisions of Sections 11 and 12 of the Income Tax Act.
7. The validity of additions made under Section 68 of the Income Tax Act.
8. The cancellation of registration under Section 12AA of the Income Tax Act.

Detailed Analysis:

1. Validity of Initiation of Proceedings under Section 153C:
The Tribunal examined whether the satisfaction note recorded by the Assessing Officer (AO) met the legal requirements for initiating proceedings under Section 153C. It was found that the AO did not rule out that the seized documents belonged to the searched person, which is a prerequisite before attributing them to another person. The Tribunal held that the satisfaction note was vague, general, and prepared mechanically without application of mind, thus invalidating the initiation of proceedings under Section 153C.

2. Attribution of Documents Seized from Third Parties:
The Tribunal scrutinized the documents seized from the residence of Shri R.K. Miglani and the office of UPDA. It concluded that these documents did not belong to the assessee but to Shri R.K. Miglani or UPDA. The Tribunal emphasized that one document can belong to one person, and in this case, the documents were alleged to belong to multiple assessees without any specific identification.

3. Evidentiary Value of Documents Seized from Third Parties:
The Tribunal referred to the Hon'ble Supreme Court's judgments in the cases of V.C. Shukla and Common Cause, A Registered Society, which held that loose sheets and random papers do not constitute admissible evidence under Section 34 of the Evidence Act. The Tribunal concluded that the documents seized from Shri R.K. Miglani's residence were not reliable or authentic and lacked corroborative material, thus failing to meet the evidentiary standards.

4. Denial of Cross-Examination:
The Tribunal noted that the assessee was denied the opportunity to cross-examine Shri R.K. Miglani, whose statements were heavily relied upon by the AO. Citing the Hon'ble Supreme Court's decision in Andaman Timber Industries, the Tribunal held that the denial of cross-examination amounted to a violation of the principles of natural justice, rendering the assessment orders null and void.

5. Limitation Period for Framing Assessments:
In the case of Lords Distillery Limited, the Tribunal examined the limitation period under Section 153B(b) and found that the assessment order was framed beyond the permissible period. The Tribunal held that the assessment was barred by limitation and, therefore, invalid.

6. Applicability of Principles of Mutuality and Sections 11 and 12:
The Tribunal addressed the issue of whether the assessee, UPDA, was entitled to the benefits of Sections 11 and 12 of the Income Tax Act. It was held that the principles of mutuality applied as the assessee collected membership fees from its members for their benefit. The Tribunal also noted that the Hon'ble High Court had protected the assessee's registration under Section 12AA till 01.10.2014.

7. Validity of Additions under Section 68:
The Tribunal found that the additions made under Section 68 based on loose sheets and random papers were not tenable. It emphasized that such documents lacked evidentiary value and were not maintained in the regular course of business. The Tribunal directed the deletion of the additions made under Section 68.

8. Cancellation of Registration under Section 12AA:
The Tribunal noted that the Hon'ble High Court had clarified that the cancellation of registration under Section 12AA should relate back only from 01.10.2014. Consequently, the Tribunal held that the benefits of Sections 11 and 12 could not be denied to the assessee for the relevant assessment years.

Conclusion:
The Tribunal quashed the assessments framed under Section 153C for lack of jurisdiction, invalid satisfaction notes, and violation of natural justice. It also directed the deletion of additions made under Section 68 and upheld the applicability of the principles of mutuality and the benefits of Sections 11 and 12 of the Income Tax Act. The Tribunal's detailed analysis underscores the importance of adhering to legal requirements and principles of natural justice in tax assessments.