2018 (11) TMI 256 - AT - Income Tax

Validity of Assessment u/s 153C - no satisfaction as recorded u/s 153C in the case of the person searched - Held that - The document referred to in the assessment order and satisfaction note and Order of the A.O. Dated 14.02.2013 rejecting the objections of the assessee, clearly reveals that Faculty Engagement Agreement may not relate to the assessment year under appeal. Therefore, the condition precedent for issuing notice under section 153C are not satisfied in this case because no satisfaction have been recorded under section 153C in the case of the person searched and no incriminating material was seized pertaining to assessment year under appeal. Since the conditions of Section 153C are not satisfied in the present case, therefore, assumption of jurisdiction by the A.O. to issue notice under section 153C is void abinitio and bad in law and vitiate the entire assessment proceedings under section 153C. The decisions relied upon by the Ld. D.R. would not apply to the facts and circumstances of the case. The issue is covered in favour of the assessee in the case of ACIT, Central Circle-9, New Delhi vs. M/s. Victory Accommodations Pvt. Ltd., Delhi (2018 (7) TMI 57 - ITAT DELHI). Set aside the Orders of the authorities below and quash the initiation of re-assessment proceedings under section 153C - Decided against assessee.

Summary

Issues Involved:
1. Legality of jurisdiction assumed under section 153C of the I.T. Act.
2. Deletion of additions made by the Assessing Officer on account of car expenses, office expenses, and unaccounted receipt of professional fees.
3. Validity of the notice issued under section 153C of the I.T. Act.
4. Requirement of satisfaction note for initiating proceedings under section 153C.

Detailed Analysis:

1. Legality of Jurisdiction Assumed Under Section 153C of the I.T. Act:
The assessee challenged the jurisdiction assumed under section 153C, asserting that no document belonging to the assessee was seized and that there was inadequate material to conclude tax evasion. The Ld. CIT(A) rejected this contention, noting that there was a reasonable cause for the Revenue to initiate proceedings under section 153C to verify transactions and ensure due taxes were paid. The Ld. CIT(A) held that the proceedings were in accordance with the law and suggested that if the assessee was aggrieved, the correct remedy was to approach the jurisdictional High Court.

2. Deletion of Additions Made by the Assessing Officer:
The Revenue appealed against the deletion of certain additions by the Ld. CIT(A), specifically:
- ?24,618/- on account of car expenses and depreciation.
- ?1,15,914/- on account of office expenses and salary.
- ?86,67,300/- on account of unaccounted receipt of professional fees from M/s Bright Professional Pvt. Ltd.

The Ld. CIT(A) had deleted these additions on merit, allowing the appeal of the assessee partly.

3. Validity of the Notice Issued Under Section 153C:
The assessee argued that the notice issued under section 153C was bad in law and without jurisdiction. The satisfaction note recorded for initiating proceedings under section 153C was not in the file of the searched person but in the file of the assessee. The assessee's objections were not properly addressed by the A.O., who held that the provisions of Section 153C were ipso facto attracted. The Tribunal found that no satisfaction note was recorded in the case of the person searched, which is a condition precedent for initiating action under section 153C. The Tribunal quashed the initiation of reassessment proceedings under section 153C, rendering all additions invalid.

4. Requirement of Satisfaction Note for Initiating Proceedings Under Section 153C:
The Tribunal emphasized that recording of satisfaction by the Assessing Officer of the person searched is a condition precedent for initiating action under section 153C. The Tribunal referred to various judgments, including the Hon'ble Supreme Court's decision in the case of Manish Maheshwari vs. ACIT, which held that the satisfaction note must be recorded by the A.O. of the person searched. The Tribunal found that no such satisfaction note was recorded in the case of the person searched, and the seized document (Faculty Engagement Agreement) did not pertain to the assessment year under appeal. Therefore, the conditions of Section 153C were not satisfied, and the assumption of jurisdiction was void ab initio and bad in law.

Conclusion:
The Tribunal allowed the cross-objection of the assessee, quashing the initiation of reassessment proceedings under section 153C and deleting all additions. The appeal of the Department was dismissed as the assessment order was quashed, rendering the grounds raised in the Departmental Appeal academic.