2018 (10) TMI 578 - AT - Income Tax

Assessment made u/s 153C - documents seized from the search operation on another person do not give rise to any undisclosed income - Held that - In the instant case, the satisfaction under section 153C of the Act has been recorded by the Assessing Officer of the searched person on March 25, 2014. A copy of the relevant satisfaction note has been placed by the assessee. AO of the assessee has received the documents subsequent to recording of dissatisfaction and thus, even we can take this date of recording satisfaction under section 153C as the date when the Assessing Officer of the assessee received the documents from the Assessing Officer of the search person. Since this date i.e. March 25, 2014 falls in the assessment year 2014-15, the six assessment years preceding the assessment year 2014-15, are the assessment year 2008-09 to the assessment year 2013-14. Since the assessment year involved before us is 2007-08, it is beyond the six assessment years which could be assessed/reassessed under section 153C of the Act. Thus, in our opinion the assessment proceeding under section 153C of the Act in assessment year in question, is without jurisdiction and beyond the purview of the said provision. Accordingly, we quash the assessment proceeding under section 153C of the Act in the instant assessment year Effective receipt of any amount from FIIT-JEE group - Held that - Learned counsel has failed to explain as how the funds have been utilised for charitable purpose. In the instant case by way of collusion between the FIIT-JEE group and the assessee, the funds have been given the group entities in the name of disbursement of scholarship etc. This collusion is evident from the statement of Sh. Aseem Gupta as how the cheque books of the assessee-society were controlled by the authorities of the FIIT-JEE group. By way of providing scholarship to the meritorious students, the FIITJEE group has served its business purposes of attracting the students to various courses run by them. Thus in our opinion, the funds of the assessee-society have not been utilised for the charitable purposes. We, accordingly, uphold the finding of the lower authorities in denying the exemption under sections 11 and 12 of the Act. - Decided in favour of assessee.

Issues Involved:
1. Jurisdictional validity of proceedings under section 153C.
2. Validity of the satisfaction note under section 153C.
3. Presence of incriminating material for additions.
4. Application of income for charitable purposes and denial of exemptions under sections 11 and 12.
5. General errors in sustaining the addition.

Detailed Analysis:

1. Jurisdictional Validity of Proceedings under Section 153C:
The primary jurisdictional issue raised by the assessee was that the proceedings under section 153C were void ab initio because the six years for assessment should be reckoned from the date of the satisfaction note (March 10, 2014), which falls in the financial year 2013-14, i.e., assessment year 2014-15. Therefore, only the assessment years 2008-09 to 2013-14 could be assessed, making the assessment for 2007-08 time-barred. The Tribunal upheld this contention, referencing the Delhi High Court's decision in Principal CIT v. Sarwar Agency Pvt. Ltd. and CIT v. RRJ Securities Ltd., which stated that the six assessment years should be calculated from the date of the satisfaction note. Consequently, the assessment proceedings for 2007-08 were quashed as being beyond the permissible period under section 153C.

2. Validity of the Satisfaction Note under Section 153C:
For the assessment year 2011-12, the assessee argued that the satisfaction note recorded on March 25, 2014, did not meet the criteria stipulated under section 153C, and the documents seized did not belong to the assessee. The Tribunal examined the satisfaction note and found that the documents, including bank account opening forms and other related documents, indeed belonged to the assessee. The Tribunal also noted that the statement of the controller of the assessee-society, Sh. Aseem Gupta, corroborated the fact that these documents were used by the FIITJEE group to rotate funds. Therefore, the Tribunal held that the satisfaction note was valid and the proceedings under section 153C were correctly initiated.

3. Presence of Incriminating Material for Additions:
The assessee contended that the documents seized were not incriminating and were maintained in the regular course of business. However, the Tribunal found that the documents, when corroborated with the statement of Sh. Aseem Gupta, were incriminating as they indicated that the assessee-society was used as a conduit for rotating funds for the FIITJEE group. The Tribunal held that these documents were sufficient to justify the additions made by the Assessing Officer.

4. Application of Income for Charitable Purposes and Denial of Exemptions under Sections 11 and 12:
The Assessing Officer denied the benefit under sections 11 and 12, concluding that the donations received by the assessee were not used for charitable purposes but were instead passed on to the FIITJEE group, benefiting the company directly. The Tribunal upheld this finding, noting that the funds were not applied for the charitable activities as claimed and were used to further the business interests of the FIITJEE group. The Tribunal emphasized that the collusion between the assessee and the FIITJEE group was evident from the statements and the misuse of the funds.

5. General Errors in Sustaining the Addition:
The assessee raised a general ground that the Commissioner of Income-tax (Appeals) made manifest errors in sustaining the addition. However, no specific arguments were presented before the Tribunal. Consequently, this ground was dismissed as infructuous.

Conclusion:
The appeal for the assessment year 2007-08 was allowed, quashing the assessment proceedings under section 153C as being time-barred. For the assessment year 2011-12, the appeal was dismissed, upholding the validity of the proceedings under section 153C, the incriminating nature of the seized documents, and the denial of exemptions under sections 11 and 12. The decision was pronounced on June 29, 2018.

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