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2018 (10) TMI 417 - AT - Income TaxAssessment u/s. 153C - recording of a satisfaction note - documents belong to other person other than the searched person - failure to furnish confirmation from the parties against purchases - allegation of Hawala Purchases - Held that - Incriminating documents relating to other person should be found during the course of search. If no incriminating documents are found and/or on the basis of seized documents, no additions can be made in the assessment order or if such seized documents are not referred to in the assessment order, such documents will not be incriminating documents. Any notice issued u/s. 153C on the basis of such notice is bad in law. Thus, the mandatory requirement mentioned in the section has not been fulfilled and hence, the notices issued u/s. 153C and consequent assessment order passed on the basis of such notice, no addition can be sustained. So far as, condition no. (iii), is concerned, that the Assessing Officer of searched person should have recorded a satisfaction note that incriminating documents belonging to third person are found; the Assessing Officer, in his capacity as the Assessing Officer of Shri Sudhakar M. Shetty (searched person) has neither issued any satisfaction note nor handed over the documents to himself (in the capacity of Assessing Officer of the other person) by passing a handover note, thus, from this angle also, the assessee is having a good case in its favour, therefore, respectfully, following the aforesaid decisions from Hon ble various High Courts, including Hon ble jurisdictional High Court, we decide this issue, from this angle, in favour of the assessee. Recording of requisite satisfaction in the case of a searched party is a sine qua non for assuming jurisdiction for the issue of notice u/s. 153C of the Act even if the Assessing Officer of the searched person and the assessee are same. It is abundantly clear from the records in the case of the searched person that there is no requisite satisfaction granting the Assessing Officer jurisdiction for issuing notice to the assessee u/s. 153C of the I.T. Act. For the purpose of Section 158BD recording of a satisfaction note is a prerequisite and the satisfaction note must be prepared by the Assessing Officer before he transmits the record to the other Assessing Officer who has jurisdiction over such other person u/s. 158BD also apply to proceedings u/s. 153C for the purposes of assessment of income of other than the searched person. This view has been accepted by CBDT in principle. It is further clarified that even if the Assessing Officer of the searched person and the other person is one and the same, then also the Assessing Officer of the searched person is required to record his satisfaction note as has been held by the Courts. Thus, it is clear that the paper seized during the course of search at the residential premises of Shri Sudhakar M. Shetty do not belong to the assessee. Further, the said paper is not incriminating in nature. Lastly, the satisfaction was not recorded by the Assessing Officer of Shri Sudhakar M. Shetty in his capacity as a Assessing Officer of searched person. Hence, the notice issued u/s. 153C is bad in law and thereby passing of assessment orders u/s. 143(3) r.w.s. 153C of the Income tax Act, 1961 are bad ab-initio. Addition on alleged Hawala purchases - Held that - Copy of the assessment order passed by the Sales tax Authorities were also filed before the Commissioner of Income tax (Appeals). This assessment order does not reveal any Hawala Parties. We also observed that the assessee has discharged its burden of proof; the additions have been made which is contrary to the principle of natural justice. Apart from above, it was also pointed out while arguing the matter on legal issue that during the course of search, no incriminating documents were found and hence, no additions can be made as decided by the Hon ble Supreme Court in the case of Sinhgad Technical Education Society, (2015 (4) TMI 190 - BOMBAY HIGH COURT). Thus, in view of the foregoing discussion, the addition made on account of alleged Hawala purchases deserves to be deleted. Liability to tax u/s. 45 - partnership firm got converted into a registered company - Held that - In the present appeal, undisputedly, the partnership firm got converted into a registered company under part (ix) of the Companies Act and thus the properties of the firm statutorily vested in the company, meaning thereby, the property of the firm became the property of the company. There was no distribution of capital asset to the partners or any other persons on registration of a firm a company, consequently, it does not make either party liable to tax u/s. 45. As relying on the decision from Hon ble Apex Court in the case of Malabar Fisheries Co. Ltd. (1979 (9) TMI 1 - SUPREME COURT) was relied upon holding that when a conversion of a firm into a company takes place under the provisions of company Act, such conversion can be construed only as occasioned by operation of law and hence no controversy can arise on the application of this principle even for the purposes of capital gains under sections 45(4) of the Act. Thus, we find no infirmity in the conclusion drawn by the Ld. Commissioner of Income Tax (Appeal) with respect to non-taxability u/s. 45(1) or 45(4) of the Act. Conversion of partnership firm into a company under chapter IX of the Companies Act, 1956, we are of the considered opinion that provisions of sections 45 r.w.s 112 of the Act is not attracted as the asset and liability of the erstwhile firm vested in the company as a whole and the interest of the partners was not reduced in any way nor any amount was paid separately to the firm or to the partners on account of goodwill or on account of revaluation of assets. Our view find clear support from the decision from Hon ble jurisdictional High Court in the case of Texspin Engg. Works 2003 (3) TMI 56 - BOMBAY HIGH COURT . Bogus purchases - Held that - No separate addition was required to be made on the same transactions in the hands of the assessee as it will amount to double taxation on the same income. It was observed that no material was brought on record by the AO that any cash had exchange hands in the transactions of alleged bogus purchase and misappropriated by the partners. Before this Tribunal, no contrary material was brought on record by the Revenue contradicting the finding of CIT (Appeals), thus, the stand taken by the Ld. First Appellate Authority is affirmed, resulting into dismissal of appeal filed by the Revenue.
Issues Involved:
1. Validity of the issuance of notice under section 153C of the Income Tax Act. 2. Validity of the assessment orders passed under section 143(3) read with section 153C. 3. Incriminating nature of documents seized during the search. 4. Validity of the issuance of notice under section 148 and assessment orders passed under section 147. 5. Double taxation on the same income. 6. Compliance with the statutory provisions of the Act and procedures prescribed under section 153C. Issue-wise Detailed Analysis: 1. Validity of the Issuance of Notice Under Section 153C: The Tribunal analyzed whether the conditions for issuing a notice under section 153C were met. The conditions include: - There should be a search action. - The documents found during the search should belong to a person other than the searched person. - The documents should be incriminating in nature. - The Assessing Officer of the searched person must record a satisfaction note that incriminating documents belonging to a third person are found. - The Assessing Officer of the searched person should hand over the satisfaction note and documents to the Assessing Officer of the other person. - The Assessing Officer of the other person can then issue notices under section 153C for the preceding six assessment years from the date on which such documents are received. The Tribunal found that the Assessing Officer of the searched person did not record a satisfaction note nor handed over the documents to the Assessing Officer of the other person. The reasons recorded by the Assessing Officer were in his capacity as the Assessing Officer of the other person and not the searched person. This was evident from the satisfaction note, which mentioned the name and PAN of the assessee and not the searched person, and the repeated use of the word "assessee" referring to the other person. 2. Validity of the Assessment Orders Passed Under Section 143(3) Read with Section 153C: The Tribunal observed that the documents found during the search were not incriminating in nature and did not reveal any undisclosed income of the assessee. The documents were not referred to in the assessment orders, and no additions were made based on these documents. Therefore, the assessment orders passed under section 153C were invalid. 3. Incriminating Nature of Documents Seized During the Search: The Tribunal found that the documents seized during the search were not incriminating in nature. The documents did not reveal any undisclosed income of the assessee and were not referred to in the assessment orders. The Tribunal relied on various judicial pronouncements, including the decision in Refam Management Services (P.) Ltd., where it was held that no incriminating material for the assessment year in question having been recovered during the search, the assessment under section 153C was invalid. 4. Validity of the Issuance of Notice Under Section 148 and Assessment Orders Passed Under Section 147: The Tribunal observed that the notice issued under section 148 and the assessment order passed under section 147 were invalid. The Tribunal relied on the decision in CIT v. Arun Kumar Kapoor, where it was held that the provisions of section 153C were applicable, which excludes the application of sections 147 and 148. The Tribunal concluded that the notice issued under section 148 and the assessment order passed under section 147 were void ab initio. 5. Double Taxation on the Same Income: The Tribunal found that the alleged bogus purchases transactions and the consequent addition were made in the hands of the firm M/s. Skylark Build. Therefore, no separate addition was required to be made on the same transactions in the hands of the assessee, as it would amount to double taxation on the same income. 6. Compliance with the Statutory Provisions of the Act and Procedures Prescribed Under Section 153C: The Tribunal observed that the Assessing Officer did not comply with the statutory provisions of the Act and the procedures prescribed under section 153C. The Tribunal relied on various judicial pronouncements, including the decision in Satkar Roadlines Pvt. Ltd., where it was held that the satisfaction note must be an objective satisfaction based on an inquiry by the Assessing Officer to establish that the documents referred to in section 153C belong to a person other than the searched person. The Tribunal concluded that the satisfaction note was not issued by the Assessing Officer in his capacity as the Assessing Officer of the searched person, and the documents were not handed over to the Assessing Officer of the other person. Conclusion: The Tribunal allowed the cross objections of the assessee and dismissed the appeals of the Revenue. The Tribunal held that the notice issued under section 153C and the assessment orders passed under section 143(3) read with section 153C were invalid. The Tribunal also held that the notice issued under section 148 and the assessment order passed under section 147 were void ab initio. The Tribunal concluded that the Assessing Officer did not comply with the statutory provisions of the Act and the procedures prescribed under section 153C.
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