2021 (12) TMI 1463 - AT - Income Tax

Assessment u/s 153C - usurpation of jurisdiction u/s 153C by the AO without first satisfying the essential condition precedent in the fourth proviso to Section 153A read with Explanation 2 of the Act - assessee had specifically objected to the AO s action of reopening the unabated assessment for AY 2011-12 u/s 153C of the Act and had requested the AO to give details of the purported assets (undisclosed/unaccounted assets unearthed during search qua the assessee qua the AY 2011-12) - HELD THAT - Perusal of the assessment order impugned before us, shows that that AO did not make any addition/s in respect of escaped/undisclosed asset in the relevant AY 2011-12. Neither was the investments held in shares by the assessee found to be unaccounted/undisclosed nor was its source of acquisition disputed or held to be unexplained by the AO. We therefore find ourselves in agreement with Shri Dudhwewala that, unless the AO made addition/s of Rs. 50 Lakhs or more in relation to escaped/undisclosed asset, he could not assume jurisdiction to make addition/s on other items (viz. credit entries in bank account etc.) The reason is simple, because in such a scenario, it bellies the claim of the AO in issuing notice u/s 153C of the Act, that he is in possession of the jurisdictional fact i.e. undisclosed asset valued Rs. 50 lakhs or more has escaped assessment, for which he seeks to re-assess the income of the assessee for the 7th to 10th AY. When the AO fails to make any addition for the undisclosed asset , then it tantamounts to admission that there was no jurisdictional fact present before the AO in the first place, and the necessary corollary is that he has wrongly assumed jurisdiction u/s. 153C for AY 2011-12 and therefore AO cannot proceed further to make other items of additions/disallowances. In such a scenario, the AO has no other option but to drop the assessment proceedings. For this conclusion of ours, we rely on the ratio laid down in the judgments of CIT Vs Jet Airways 2010 (4) TMI 431 - HIGH COURT OF BOMBAY Ranbaxy Laboratories Ltd. 2011 (6) TMI 4 - DELHI HIGH COURT Though these judgments were rendered in the context of reopening u/s. 147 of the Act, however the ratio decidendi will apply in the present case, because, like Section 147/148 of the Act, the AO gets the authority to assess/reassess the income of a searched person or other person u/s 153A/153C for the extended assessment years (7th to 10th AYs) only if he has in his possession the jurisdictional fact, as discussed. If the AO is found to have assumed jurisdiction erroneously on mistaken belief about the existence of jurisdictional fact or ultimately drops it (after making enquiries in the course of assessment) while framing the reassessment order; then the AO cannot legally proceed further with the assessment/reassessment and/or make any other items of additions/disallowances, for the reason that the jurisdictional fact is absent or not in existence at the first place when he usurped the jurisdiction. In the light of the aforesaid discussion, and in our considered opinion, this submission of Shri Dudhwewala is well founded and deserves to be accepted. In view of the above and on perusal of the impugned re-assessment order, we note that the only addition made by the AO in AY 2011-12 was on account of unexplained cash credit represented by sale proceeds u/s 68 of the Act. As noted earlier, the additions on account of unexplained cash credit , could not have been made by the AO, unless he first made an addition of undisclosed asset valued at Rs. 50 Lakhs or more. So in this case, as there was no addition made by AO on account of undisclosed asset, we can safely infer that there was no jurisdictional fact in the AO s hand or in his possession when he assumed jurisdiction u/s 153C for AY 2011-12 in the first place itself. As, the very usurpation of jurisdiction u/s. 153C of the Act is found to be bad in law for want of jurisdiction, the AO was precluded from making any other addition in the assessment for AY 2011-12. Hence, the AO s action of making addition u/s 68 of the Act in the relevant AY 2011-12 is held to be unsustainable for want of jurisdiction and is therefore is quashed. The assessee thus succeeds on the first legal challenge raised in the cross objections. Hence, Ground No. 2 of the cross objections stands allowed. Determining the abated/unabated assessment u/s 153C - date of search as ascertained - HELD THAT - As we hold that in the case of unabated assessments of an assessee, no addition is permissible in the order u/s 153C of the Act unless it is based on any incriminating material found during the course of search. The nature of the evidence or information gathered during the search should be of such nature that it should not merely raise doubt or suspicion, but should be of such nature which would prima facie indicate that real and true nature of transaction between the parties is something different from the one recorded in the books or documents maintained in ordinary course of business. In some instances, the information, document or evidence gathered in the course of search, may raise serious doubts or suspicion in relation to the transactions reflected in regular books or documents maintained in the ordinary course of business, but in such case the AO is not permitted to straightaway treat such material to be incriminating in nature unless the AO thereafter brings on record further corroborative material or evidence to substantiate his suspicion and conclude that the transaction reflected in regular books or documents did not represent the true state of affairs. Until these conditions are satisfied, it cannot be held that every seized material or document is incriminating in nature, justifying the additions in unabated assessments. We thus hold that the assertion of the AO in the 'Satisfaction Note' that having a bearing on the total income of the assessee is perverse and erroneous. The alleged documents relied upon by the AO to usurp jurisdiction u/s 153C of the Act and justify the impugned addition did not constitute incriminating material found in the course of search, from which any undisclosed/unexplained income could be inferred in the hands of the assessee. Hence, as there was no incriminating material against the assessee which was unearthed/seized during the search conducted on 22-12-2017 from the premises of Sagar Group, the satisfaction note prepared by the AO did not meet the condition precedent stipulated u/s. 153C of the Act, as the document referred to, did not have any bearing on the total income of the assessee for AY 2011-12. In that view of the matter, the very assumption of the jurisdiction for AY 2011-12 is held to be bad in the eyes of law as held by the Hon'ble Supreme Court in the case of Sinhgad Technical Education Society 2017 (8) TMI 1298 - SUPREME COURT and, accordingly the consequent order dated 3112-2019 is quashed. We are of the view that based on the sole statement of Shri Agarwal, the AO could not have usurped the jurisdiction u/s 153C of the Act. Even otherwise, based on the discrepancy as discussed about Annexure -1 it is not safe to rely on it and above all, as discussed it did not contain anything which incriminated the assessee. Hence, such statement could not be the basis for drawing adverse inference against the assessee and therefore, no addition could have been made on the basis of such unreliable statement. We thus find that the contentions raised by the Ld. CIT DR are devoid of merits and is therefore rejected AO had invalidly usurped jurisdiction u/s 153C of the Act as there was no incriminating material pertaining to the assessee seized in the course of search. Even the addition made in the unabated assessment for AY 2011-12 was unsustainable since it was not based on any incriminating material found in the course of search. In that view of the matter, the order dated 31-12-2019 passed by the AO is held to be a nullity and is accordingly quashed. Hence, Ground No. 1 of the cross objections also stands allowed. CIT(A) s action of holding the assessment order passed u/s 153C/143(3) to be ab initio void, for the AO s failure to issue notice u/s 143(2) of the Act prior to completion of assessment - We find merit in the submission of the Ld. DR that issuance of notice under section 143(2) is not mandatory for finalization of assessment under section 153A/153C of the Act. We note that the Ld. CIT(A) s had wrongly relied on the decisions of Hotel Blue Moon 2010 (2) TMI 1 - SUPREME COURT Laxman Das Khandelwal 2019 (8) TMI 660 - SUPREME COURT which were distinguishable in as much as it were rendered in the context of assessments framed u/s 143(3)/158BC, where issuance of notice u/s 143(2) of the Act to assume jurisdiction over the assessee is mandatory. However, Section 153A/153C of the Act is a special provision and we find that there is no specific provision in the Act requiring the assessment to be made under section 153A/153C after issue of notice under section 143(2) of the Act. As decided in Ashok Chaddha 2011 (7) TMI 252 - DELHI HIGH COURT . There is no specific provision in the Act requiring the assessment made under s. 153A to be after issue of notice under s. 143(2) of the Act. Clause (b) of s. 158BC expressly provides that the AO shall proceed to determine the undisclosed income of the block period in the manner laid down in s. 158BB and the provisions of s. 142, sub-ss (2) and (3) of s. 143, s. 144 and s. 145 shall, so far as may be, apply. This is not the position under s. 153A. The law laid down in Hotel Blue Moon, is thus not applicable to the facts of the present case. Impugned order passed u/s 153C of the Act to be a nullity on the premise that it was passed consequent to the return of income filed by the assessee in response to earlier notice issued u/s 153A - We note that the Ld. DR has rightly pointed out that, the Ld. CIT(A) had erroneously observed that the AO had first issued notice u/s 153A of the Act for AY 2011-12 and thereafter without consigning/dropping the earlier notice, he had initiated fresh proceedings u/s 153C of the Act. Upon examination of the records, we note that, unlike for AYs 2012-13 to 2017-18, the AO for AY 2011-12 had issued only one notice u/s 153C of the Act dated 05-12-2019 and the assessee had also filed the return of income in response thereto, pursuant to which the assessment dated 31-12-2019 was framed u/s 153C/143(3) of the Act. We thus find merit in the Revenue s case that this finding of the Ld. CIT(A) was erroneous. Before us, the Ld. AR was unable to controvert this fact. Thus as the very usurpation of jurisdiction by the AO u/s 153C has been held to be bad in law and, even the seized documents referred by the AO for justifying the addition/s made u/s 68 of the Act, in the unabated assessment for the AY 2011-12, did not constitute incriminating material ; the order passed u/s 153C/143(3) and the AO s action of making addition u/s 68 of the Act therein, is held to be a nullity and is unsustainable for want of jurisdiction and is therefore is quashed.

Summary

Issues Involved:
1. Validity of jurisdiction assumed by the AO under Section 153C of the Income Tax Act.
2. Requirement of incriminating material for reassessment in case of unabated assessments.
3. Validity of the assessment order under Section 153C/143(3) without prior approval under Section 153D.
4. Requirement of notice under Section 143(2) for finalizing assessment under Section 153A/153C.
5. Merits of the addition made under Section 68 of the Income Tax Act.

Detailed Analysis:

1. Validity of Jurisdiction Assumed by the AO under Section 153C:
The AO issued notices under Section 153C for AY 2011-12, which was beyond the normal period of six assessment years. The assessee challenged the validity of these notices on the grounds that the AO did not have in his possession any incriminating evidence revealing income represented in the form of an asset valued at Rs. 50 Lakhs or more that had escaped assessment. The Tribunal held that the AO could not have assumed jurisdiction under Section 153C without first having in his possession the undisclosed/unaccounted asset. The Tribunal emphasized that the jurisdictional fact is sine qua non for valid assumption of jurisdiction to issue notice for AY 2011-12 and found that the AO did not have such jurisdictional fact in his possession. Therefore, the notice issued under Section 153C was held to be bad in law.

2. Requirement of Incriminating Material for Reassessment in Case of Unabated Assessments:
The Tribunal noted that the assessment for AY 2011-12 did not abate and thus could only be reassessed with reference to incriminating material found during the search. The Tribunal found that the documents referred to by the AO (Pages 61 to 69 of SST-01) were part of the regular books of accounts and did not constitute incriminating material. The Tribunal held that the addition made under Section 68 of the Act was not based on any incriminating material found during the search and thus was unsustainable.

3. Validity of the Assessment Order under Section 153C/143(3) without Prior Approval under Section 153D:
The Tribunal noted that the AO had not sought prior approval from the jurisdictional Additional Commissioner of Income-tax before passing the assessment order under Section 153C/143(3). However, since the Tribunal had already quashed the assessment order for want of jurisdiction, it did not return findings on this issue, deeming it academic in nature.

4. Requirement of Notice under Section 143(2) for Finalizing Assessment under Section 153A/153C:
The Tribunal agreed with the Revenue that issuance of notice under Section 143(2) is not mandatory for finalizing assessments under Section 153A/153C. The Tribunal relied on the decision of the Hon'ble Delhi High Court in Ashok Chaddha Vs ITO, which held that there is no specific provision in the Act requiring assessments under Section 153A to be after the issue of notice under Section 143(2).

5. Merits of the Addition Made under Section 68 of the Income Tax Act:
The Tribunal noted that the AO had made an addition under Section 68 based on the proceeds received upon the sale of investments. However, since the Tribunal found that the AO had invalidly assumed jurisdiction under Section 153C and that the addition was not based on any incriminating material found during the search, the Tribunal did not adjudicate the merits of the addition, deeming it academic in nature.

Conclusion:
The Tribunal quashed the assessment order passed by the AO under Section 153C/143(3) for AY 2011-12, holding it to be a nullity for want of jurisdiction and for being unsustainable due to the absence of incriminating material. The Tribunal allowed the cross objections of the assessee and partly allowed the appeal of the Revenue.