2016 (4) TMI 749 - AT - Income Tax

Validity of assessment u/s 153C - Held that - In the case on hand, it is an admitted fact recorded in the orders of assessment that the incriminating documents in the form of diaries were found during the survey proceedings undertaken in the business premises of the assessee firm. It is therefore clear that the concerned documents/diaries did not emanate from out of seizures made in the course of search action. In this factual matrix of the case on hand, we find that the essential condition of section 153C of the Act is not fulfilled. Further, the Assessing Officer vide letter dt. 16/10/2015 has admitted that the satisfaction note for initiating the proceedings u/s 143(3) r.w.s.153C of the Act is not available on record., but has stated that it was the same Assessing Officer for initiation of the proceedings u/s 143(3) r.w.s 153C of the Act. Therefore, we find that the twin conditions (i) that the incriminating documents should have been found during the course of search action u/s132 of the Act and (ii) that the Assessing Officer should have recorded his satisfaction are not fulfilled in this case. Further, the CBDT, Circular No 24/2015 dt. 31/12/2015 has made its applicability to pending litigation as well. In view of the above factual and legal matrix of the case, we uphold the ground raised that the orders of assessments for Asst. years 2006-07 and 2007-08 passed u/s 143(3) r.w.s. 153C of the Act are without jurisdiction. - Decided in favour of assessee

Issues Involved:
1. Jurisdiction of notice issued under Section 153C.
2. Evidence of unaccounted income found during survey.
3. Validity of notice issued under Section 143(2).
4. Additions made on account of unaccounted income from cash sales of flats and shops.
5. Estimation of undisclosed income based on evidence found.

Issue-wise Detailed Analysis:

1. Jurisdiction of Notice Issued Under Section 153C:
The assessee contended that no incriminating evidence relating to the firm was found during the search action under Section 132 at the residence of the partner. The diaries used as evidence for 'on money' receipts were found during the survey under Section 133A at the business premises, not during the search. The Tribunal agreed, referencing the Hon'ble Madhya Pradesh High Court's decision in CIT vs. M/s. Mechmen, which states that proceedings under Section 153C should emanate from search action under Section 132. The Tribunal found that the conditions for initiating proceedings under Section 153C were not met, as the incriminating documents were found during a survey, not a search. Additionally, the Assessing Officer did not record the required satisfaction note, making the initiation of proceedings under Section 153C invalid.

2. Evidence of Unaccounted Income Found During Survey:
During the survey at the assessee's premises, diaries were found indicating unaccounted cash receipts. The assessee admitted to cash receipts and additional income of Rs. 1,50,00,000 for the financial year relevant to AY 2007-08. Another diary evidenced cash transactions for the sale of shop No. 3, with a cash component of Rs. 21,12,500. The Assessing Officer attributed unaccounted cash receipts to the sale of shops based on this evidence.

3. Validity of Notice Issued Under Section 143(2):
The Tribunal noted that the notice under Section 143(2) for AY 2007-08 was issued on 21/11/2008, beyond the one-year period allowed by law. Consequently, the assessment order for AY 2007-08 was deemed invalid due to the untimely issuance of the notice.

4. Additions Made on Account of Unaccounted Income from Cash Sales of Flats and Shops:
The Assessing Officer added Rs. 1,50,00,000 to the income of the assessee for AY 2007-08 based on the noting in the diary and the assessee's admission. For the sale of shops, the AO attributed Rs. 20,00,000 of unaccounted cash receipts per shop. The CIT(A) upheld the addition for cash receipts on the sale of flats but restricted the addition for shops to 9 shops sold in AY 2007-08, deleting the addition for AY 2006-07 due to lack of evidence.

5. Estimation of Undisclosed Income Based on Evidence Found:
The CIT(A) found no basis for adopting Rs. 20,00,000 per shop for 'on money' receipts and directed that the amount be computed at Rs. 21,12,500 per shop based on the evidence for shop No. 3. The Tribunal upheld the CIT(A)'s decision, noting that the estimation of undisclosed income should be based on concrete evidence.

Conclusion:
The Tribunal allowed the assessee's appeal for AY 2007-08, finding the assessment order invalid due to the untimely notice under Section 143(2) and improper jurisdiction under Section 153C. The revenue's appeals for AY 2006-07 and 2007-08 were dismissed, as the CIT(A)'s findings on the estimation of undisclosed income and deletion of additions were upheld. The Tribunal emphasized the necessity of proper jurisdiction and timely notices for valid assessments.

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