2017 (9) TMI 633 - AT - Income Tax

Assessment u/s 153C - proof of satisfaction recorded by the AO of the searched person u/s 132 - Held that - The proceedings u/s 153C taken by the AO in absence of any satisfaction recorded by the AO of the searched person u/s 132 of the Act were illegal and void ab-initio and so is the order passed by the AO consequent to such proceedings. Accordingly, ground taken by the assessee is allowed on legal issue without going into the merit of the case. Appeal of the assessee is allowed

Issues Involved:
1. Validity of the assessment order under section 143(3) read with section 153C of the Income Tax Act.
2. Addition of ?1,93,57,057/- on account of alleged 'On Money' cash payment.

Issue-wise Detailed Analysis:

1. Validity of the Assessment Order under Section 143(3) read with Section 153C of the Income Tax Act:

The primary issue raised by the assessee was the legality and jurisdiction of the assessment order passed under section 143(3) read with section 153C of the Income Tax Act. The assessee argued that the order was illegal, bad in law, and without jurisdiction because the Assessing Officer (AO) did not record the necessary satisfaction as required under section 153C before issuing the notice. The appellant contended that the recording of satisfaction by the AO of the searched person is a prerequisite for the issuance of notice under section 153C, and failing to do so renders the proceedings under section 153C illegal and void.

In this case, a search operation under section 132 was conducted on the Bharat Shah Group, during which it was found that a flat was sold to the assessee and his wife for a total consideration of ?3,87,14,102/-, with part of the payment made in cash. Based on this finding, the AO issued a notice under section 153C. The assessee denied making any cash payment, but the AO did not accept this denial and made an addition of ?1,93,57,057/- to the assessee's income.

The First Appellate Authority (CIT(A)) confirmed the AO's action, stating that the notice under section 153C was issued based on information obtained during the search, which indicated that the flat was purchased for a total consideration, part of which was paid in cash. The CIT(A) held that the AO rightly brought the said amount to tax while completing the assessment under section 153C.

However, the Tribunal found that the notice issued under section 153C was invalid as no satisfaction was recorded by the AO of the searched person. The Tribunal noted that it is a settled legal position that a notice under section 153C issued without recording satisfaction is invalid, and so is the consequent assessment based thereon. The Tribunal relied on several judicial precedents, including the cases of Smt. Jyotsna Desai and Chandravadan Desai, where it was held that the initiation of proceedings under section 153C without recording satisfaction is not warranted and deserves to be quashed.

2. Addition of ?1,93,57,057/- on Account of Alleged 'On Money' Cash Payment:

The second issue was the addition of ?1,93,57,057/- made by the AO on account of alleged 'On Money' cash payment for the purchase of a flat. The assessee denied making any such payment and argued that the addition was made solely based on assumptions, surmises, and conjectures without any material evidence.

The Tribunal observed that the AO made the addition based on a loose sheet found during the search, which allegedly indicated cash payments. However, the Tribunal found that the document did not contain the name of the assessee, was undated, and did not bear any signature. Both the purchaser and the seller denied the contents of the document. The AO's interpretation of the document as indicating cash payments was not supported by any material evidence.

The Tribunal referred to the case of Shri Ashok Mehta, where a similar issue was decided in favor of the assessee. In that case, the Tribunal held that the AO made the addition based on surmises and conjectures without any corroborative evidence. The Tribunal concluded that the proceedings under section 153C were illegal and void ab initio due to the absence of recorded satisfaction, and therefore, the addition made by the AO was also invalid.

Conclusion:

The Tribunal allowed the appeal of the assessee, holding that the notice issued under section 153C was invalid due to the lack of recorded satisfaction by the AO of the searched person. Consequently, the assessment order and the addition of ?1,93,57,057/- were quashed. The Tribunal did not need to adjudicate the other grounds raised by the assessee as the appeal was decided on the technical ground of jurisdiction. The appeal of the assessee was allowed, and the order was pronounced in the open court on 14th June 2017.

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