2018 (5) TMI 1036 - AT - Income Tax

Assessment u/s 153C - non recording of satisfaction by AO - Held that - As can be seen from the satisfaction recorded by the AO while initiating proceedings u/s. 153C, there is neither any linking up of the documents nor any finding that certain seized documents pertain to assessee. Moreover, AO also has not recorded any satisfaction while initiating proceedings u/s. 153C. In view of this, we are of the opinion that there is no satisfaction recorded by the AO, as required under the provisions. - Decided in favour of assessee

Summary

Issues Involved:
1. Validity of proceedings under Section 153C of the IT Act.
2. Addition towards gain on sale of agricultural lands.
3. Duplication of sale consideration receipts.
4. Payment to other landowners to be reduced from sale consideration.
5. Estimation of income from remaining sale consideration minus land cost.

Detailed Analysis:

1. Validity of proceedings under Section 153C of the IT Act:
The assessee challenged the validity of the proceedings under Section 153C of the IT Act, arguing that the Assessing Officer (A.O) did not record the necessary satisfaction as required by law before issuing the notice. The Tribunal admitted this legal ground based on the Supreme Court's decision in NTPC Limited and the CBDT Circular No. 24/2015. The Tribunal found that there was no satisfaction recorded by the A.O of the person searched (OSS Prasad) nor by the A.O of the assessee before issuing the notice under Section 153C. The Tribunal relied on precedents, including the jurisdictional High Court’s decision in CIT Vs Shetty Pharmaceuticals and Biological Ltd., and the Supreme Court's rulings in Calcutta Knitwears and Manish Maheswari, which emphasized the necessity of recording satisfaction before initiating proceedings under Section 153C. Consequently, the Tribunal held that the assessment framed under Section 153C was void ab initio and quashed the proceedings.

2. Addition towards gain on sale of agricultural lands:
The assessee contended that the lands sold were agricultural lands, and the gain from their sale should be considered agricultural income, which is exempt from tax. The CIT(A) upheld the A.O's addition of ?1,44,95,000 towards the gain on sale, rejecting the assessee's claim. However, since the Tribunal declared the assessment under Section 153C void ab initio, the merits of this addition were not adjudicated.

3. Duplication of sale consideration receipts:
The assessee argued that there was a duplication of receipts amounting to ?60,00,000, which should be reduced from the sale consideration. This issue was raised in additional grounds of appeal, but the Tribunal did not adjudicate it separately due to the primary finding that the assessment itself was void.

4. Payment to other landowners to be reduced from sale consideration:
The assessee claimed a reduction of ?11,75,000 from the sale consideration, arguing that this amount was paid to other landowners. This argument was also part of the additional grounds of appeal, but like the previous issue, it was not separately addressed due to the void assessment ruling.

5. Estimation of income from remaining sale consideration minus land cost:
The assessee suggested that the income from the remaining sale consideration, after deducting the land cost, should be estimated at 25% of the receipts minus the land cost, referencing ITAT Hyderabad's decisions in Rao Ravi Kumar and Rajapushpa properties. This estimation issue was similarly not adjudicated independently because the Tribunal's primary decision rendered the entire assessment void.

Conclusion:
The Tribunal's primary decision was that the assessment under Section 153C was void ab initio due to the lack of recorded satisfaction by the A.O, rendering all other grounds of appeal on merits academic and not adjudicated. The assessee's appeals were partly allowed based on this jurisdictional issue, and the assessments for the relevant years were quashed.