2017 (2) TMI 165 - AT - Income Tax

Validity of assessment u/s 153C - Addition based on certain notings on a loose paper found - Held that - The information sent by the Assessing Officer of the searched person to the Assessing Officer of the assessee was based on certain notings on a loose paper found in the premises of Bharat Shah Group of cases. Quite clearly, even the Assessing Officer of the searched person, as manifested by the information sent to the instant Assessing Officer, which we have extracted above, does not conclude much less makes a charge that the loose papers belong to the assessee. There is no averment that loose papers do not belong to the searched person. In fact, even the satisfaction note canvassed by the Ld. Departmental Representative before us, which has been extracted above, does not say that the loose paper belong to a person other than the searched person. At best, the only charge made out is that the documents seized relate to theassesseeand that purchase consideration of the properties involve cash element At this stage, it would be pertinent to go back to the legal position explained by the Hon ble Delhi High Court in the case of Pepsico India Holdings (P.) Ltd (2014 (8) TMI 898 - DELHI HIGH COURT) wherein it is held that the expression relates to cannot be equated to the expression belongs to which finds a mention in section 153C of the Act. Therefore, considering that Revenue has failed to establish that the documents in question do not belong to the searched person, the question of invoking of section 153C of the Act in the hands of the assessee company merely on the strength that the documents being related to it, cannot be justified. We uphold the ultimate conclusion of the CIT(A) annulling the assessment, albeit on the ground that above discussed ingredients of section 153C of the Act have not been satisfied in this case.

Summary

Issues Involved:
1. Validity of assessment under section 153C of the Income Tax Act, 1961.
2. Merits of the addition of ?2,06,32,051/- as unexplained investment.

Issue-Wise Detailed Analysis:

1. Validity of Assessment under Section 153C of the Income Tax Act, 1961:

The primary issue raised by the Revenue was whether the CIT(A) erred in annulling the assessment completed under section 153C of the Income Tax Act, 1961. The relevant facts revealed that the assessee, a company engaged in diamond trading, had entered into agreements with M/s. Layer Exports Pvt. Ltd. for the purchase of flats. During a search action under section 132(1) at the premises of Bharat Shah Group, certain loose papers were seized, indicating that the assessee had paid cash of ?2,06,32,051/- to M/s. Layer Exports Pvt. Ltd. Consequently, the Assessing Officer issued a notice under section 153C, considering the sum as unexplained investment.

The CIT(A) annulled the assessment, concluding that the conditions precedent for issuing a notice under section 153C were not fulfilled. The CIT(A) noted that there was no satisfaction recorded by the Assessing Officer of the Bharat Shah Group that the seized material pertained to the assessee. Additionally, the search did not reveal any document or material belonging to the assessee, and the notice under section 153C was issued almost two years and six months after the search, which was beyond a reasonable time.

The Tribunal upheld the CIT(A)'s decision, emphasizing that the Assessing Officer of the searched person must be satisfied that the seized material belongs to a person other than the searched person. The Tribunal referred to the judgment of the Hon'ble Delhi High Court in the case of CIT v. Pepsico India Holdings (P.) Ltd., which clarified that the expression "belongs to" cannot be equated with "relates to" or "refers to." The Tribunal found that the information sent by the Assessing Officer of the searched person did not conclude that the loose papers belonged to the assessee. Thus, the conditions for invoking section 153C were not met, and the assessment was rightly annulled by the CIT(A).

2. Merits of the Addition of ?2,06,32,051/- as Unexplained Investment:

The cross appeal of the assessee primarily contested the merits of the addition of ?2,06,32,051/- made by the Assessing Officer. However, since the CIT(A) had annulled the assessment, the merits of the addition were not adjudicated by the CIT(A).

The Tribunal noted that since the assessment itself was annulled, the cross objection of the assessee dealing with the merits of the addition became academic and was also liable to be dismissed.

Conclusion:

The Tribunal dismissed the appeal of the Revenue and the cross objection of the assessee, affirming the CIT(A)'s decision to annul the assessment under section 153C of the Income Tax Act, 1961. The Tribunal concluded that the conditions for invoking section 153C were not satisfied, and therefore, the assessment was invalid. The merits of the addition were not addressed as the assessment itself was annulled.