2018 (12) TMI 1751 - AT - Income Tax

Assessment u/s 153A - whether section 153C of the Income-tax Act, 1961 hereinafter referred to as 'the Act' for short , to the extent it, inter alia, enables the Assessing Officer to issue notice to third parties, on the basis of satisfaction that any money, bullion, any jewellery or other valuable article or thing or books of account or documents seized or requisitioned belongs or belong to a person other than the person referred to in section 153A i.e. the person searched? - satisfaction recorded by the Assessing Officer - HELD THAT - Allegation of the Revenue is entirely unjustified, unsupported by any document found from the possession or control of the appellants. It is well settled rule of law that burden of proof is on the alleger and not on the person against whom the allegation is made. In the present appeals, the burden is thus on the Revenue to establish that the documents found from the third persons are reliable and authentic and also such documents belong to the distilleries which is uncorroborated by any evidence and even the author of the documents have not been identified. Therefore, it can safely been concluded that the Revenue has not discharged its burden. The mere fact that some of the distilleries are members of the association UPDA does not by itself lead to a conclusion that adverse inference can be drawn against members of the association since documents were found from the premises of the association and not from the distilleries. The contents of the impugned documents have to be established as genuine by leading cogent positive evidence or material and have to be supported by corroborative material. In the present appeals, no such material has been brought on record. Therefore, we have no hesitation to hold that the proceedings u/s 153C of the Act have not been validly initiated and, therefore, deserve to be quashed. Gross violation of principles of natural justice - No cross examination was allowed by the revenue - 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. 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 - As mentioned elsewhere, the assessment proceedings u/s 153C of the Act 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) of the Act, 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 vehemently stated that the time taken for filing the appeal by the department before the Hon'ble High Court of Calcutta should also be excluded. We do not find any merit in this contention of the ld. DR 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. Appeals of the assessee are allowed. Addition u/s 68 - HELD THAT - The linkage between the material seized from UPDA s premise as well as statement of Shri R.K. Miglani was not established through any objective material. Without bringing any cogent material on record, it is merely a presumption that the UPDA has been primarily engaged in the work of facilitating the collection and payment of bribe money. Some more issues have been raised by the ld. DR. (i) On the basis seized from the residence of Shri R.K. Miglani, M/s Radico Khaitan Ltd surrendered ₹ 27.50 crores and Balrampur Chini Mills surrendered ₹ 8.90 crores. We fail to understand how the action of some other tax payer is relevant in the case of the appellant. The wisdom of Radico Khaitan Ltd and Balrampur Chini Mills cannot be considered and should not be considered in the hands of the appellant. Incriminating documents were also seized from the laptop of Shri Ajay Agarwal, General Manager of M/s Radico Khaitan Ltd. Again, it is between M/s Radico Khaitan Ltd and its General Manager to explain the incriminating documents. The assessee cannot be held to be responsible for the same. DR has further asserted that the Revenue has produced a number of evidences in support of the fact that the distillers had made unaccounted payments to UPDA. In this regard, 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 Exemption u/s 11 and 12 - HELD THAT - In the light of our decision relating to the additions made u/s 68 of the Act, we are of the considered opinion that the benefits of section 11 12 cannot be denied to the assessee. Cancellation of registration granted u/s 12AA - enhancement of the income by the ld. CIT(A) from NIL - HELD THAT - Since the registration was cancelled, the assessee was assessed in the status of an AOP. The ld. CIT(A) found that surplus of receipt over expenditure is ₹ 4,88,140/-. According to the ld. CIT(A), this income should have been brought to tax by the Assessing Officer. The ld. CIT(A) issued notice of enhancement in reply to which the assessee strongly contended that it is not carrying out any business activity and that it has not earned during the year under appeal which can be subjected to income tax. It was further brought to the notice of the first appellate authority that the assessee has only received membership subscription of ₹ 22.34 lakhs. The surplus of ₹ 4.88 lakhs is the unspent amount from out of the membership subscription received during the year under appeal. 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. Satisfaction note recorded by the Assessing Officer.
3. Documents seized and their ownership.
4. Cross-examination of Shri R.K. Miglani.
5. Barred by limitation.
6. Assumption of jurisdiction.
7. Additions made under Section 68 of the Income Tax Act.
8. Denial of benefits under Sections 11 and 12 of the Income Tax Act.
9. Cancellation of registration under Section 12AA of the Income Tax Act.
10. Principles of Mutuality.

Detailed Analysis:

1. Validity of Initiation of Proceedings under Section 153C
The Tribunal examined whether the satisfaction note recorded by the Assessing Officer satisfied the legal requirement for initiating proceedings under Section 153C. It was found that the satisfaction note was vague, general, and prepared mechanically without proper application of mind. The Tribunal emphasized that the Assessing Officer must rule out that the seized documents do not belong to the person searched before proceeding against third parties. In this case, the Assessing Officer failed to establish that the documents belonged to the third parties, leading to the conclusion that the initiation of proceedings under Section 153C was invalid.

2. Satisfaction Note Recorded by the Assessing Officer
The Tribunal scrutinized the satisfaction note and found that it did not meet the legal requirements. The note was vague and did not specifically identify the documents belonging to the third parties. The Tribunal highlighted the necessity for the Assessing Officer to clearly rule out that the documents do not belong to the searched person before identifying the third parties to whom the documents belong.

3. Documents Seized and Their Ownership
The Tribunal examined the documents seized from Shri R.K. Miglani and found that they were not conclusively proven to belong to the third parties (distilleries). The documents were maintained by Shri R.K. Miglani and not by the distilleries. The Tribunal concluded that the documents did not belong to the distilleries and, therefore, could not be used to initiate proceedings under Section 153C against them.

4. Cross-Examination of Shri R.K. Miglani
The Tribunal noted that the distilleries were not provided an opportunity to cross-examine Shri R.K. Miglani, whose statements were heavily relied upon by the Assessing Officer. The Tribunal emphasized that the denial of cross-examination violated the principles of natural justice and rendered the assessment proceedings null and void.

5. Barred by Limitation
The Tribunal addressed the issue of limitation and found that the assessment orders were barred by limitation. The assessments were framed beyond the period prescribed under Section 153B(b) of the Income Tax Act, taking into account the period during which proceedings were stayed by the court. Consequently, the assessments were held to be invalid.

6. Assumption of Jurisdiction
The Tribunal examined the assumption of jurisdiction by the Assessing Officer and found it to be invalid. The satisfaction note did not meet the legal requirements, and the documents seized did not belong to the third parties. Therefore, the assumption of jurisdiction under Section 153C was invalid.

7. Additions Made under Section 68
The Tribunal scrutinized the additions made under Section 68 of the Income Tax Act based on entries in loose sheets and diaries seized from Shri R.K. Miglani. It was found that these entries did not constitute books of account and lacked independent evidence to support their trustworthiness. The Tribunal relied on the Supreme Court's decisions in V.C. Shukla and Common Cause, A Registered Society, to conclude that the additions under Section 68 were not tenable.

8. Denial of Benefits under Sections 11 and 12
The Tribunal addressed the denial of benefits under Sections 11 and 12 of the Income Tax Act. It found that the Assessing Officer's denial was based on unaccounted receipts which were not proven to be unaccounted. Since the additions under Section 68 were deleted, the Tribunal directed the Assessing Officer to allow the benefits under Sections 11 and 12.

9. Cancellation of Registration under Section 12AA
The Tribunal noted that the cancellation of registration under Section 12AA was protected by the High Court's order until 01.10.2014. Therefore, the cancellation of registration was not applicable for the assessment years under consideration.

10. Principles of Mutuality
The Tribunal applied the principles of mutuality and found that the assessee's activities were for the benefit of its members. The collection from members was used for the association's activities, and the principles of mutuality were applicable. The Tribunal rejected the Assessing Officer's contention that the association's activities were against public policy.

Conclusion:
The Tribunal concluded that the proceedings under Section 153C were invalid due to the failure to meet legal requirements in the satisfaction note, improper assumption of jurisdiction, and lack of ownership of the seized documents by the third parties. The denial of cross-examination and the assessments being barred by limitation further invalidated the proceedings. The additions under Section 68 were deleted, and the benefits under Sections 11 and 12 were directed to be allowed. The cancellation of registration under Section 12AA was not applicable for the assessment years under consideration, and the principles of mutuality were upheld.