2019 (7) TMI 984 - AT - Income Tax

Legality of notice u/s 153C - satisfaction of AO - HELD THAT - The revenue has not rebutted the contention of the assessee that there is no valid satisfaction as contemplated u/s 153C. The revenue has not brought on record the satisfaction recorded by the assessing officer of the searched person as well as the assessing officer of the assessee. Therefore, respectfully following in the case of CIT Vs. Mechmen 2015 (7) TMI 1291 - MADHYA PRADESH HIGH COURT hold that the proceedings u/s 153C are not validly initiated. No correlation document sized wise with the relevant assessment year - HELD THAT - In the present case, search was carried out at the third party s premises where from the document related to sale by the assessee were recovered but the A.O. has made addition in respect of the land purchased by the assessee. Admittedly, the document related to purchase of land made by the assessee was not recovered. Therefore, the document of sale cannot be related to the year of purchase. As relied by the assessee in the case of Pr. CIT (Central)-2 Vs. Index Securities (P) Ltd. 2017 (9) TMI 585 - DELHI HIGH COURT the proceedings u/s 153C are not in accordance with law. Income offered in the income tax return - Another objection of the assess is that the income from capital gain from sale of 3 acres of land to Fortune Soumya Housing was already offered in the income tax return for the assessment year 2012-13, hence, the document cannot even be treated as incriminating. This fact is not controverted by the revenue, hence we find force in to the contention of the assessee. Thus, this document seized at the premises of the third party cannot be treated as incriminating. Hence, looking to the totality of the facts, hold that the proceedings initiated u/s 153C and assessment order passed are not in conformity of law and the same is hereby quashed. Unexplained investment - HELD THAT - We find from the reply furnished to the A.O. enclosed at paper book pages 16 to 19 that assessee had purchased properties in the years 2002 2006 even prior to the purchase of the properties in question at a higher consideration. A.O. has not disbelieved this investments and source of investment by the assessee. It is also fact that the assessee also purchased properties subsequent to purchase of the agricultural land in question. Therefore, the cash book as submitted by the assessee could not have been disbelieved and it can be inferred from the same that the assessee was having sufficient source of income to make investment. Hence, the assessee succeeds on this ground as well.

Summary

Issues Involved:
1. Legality of the notice issued under Section 153C of the Income Tax Act.
2. Confirmation of the addition of ?4,08,131/- as unexplained investment under Section 69 of the Act.

Issue-wise Detailed Analysis:

1. Legality of the Notice Issued Under Section 153C:

The primary contention of the assessee was that the notice issued under Section 153C of the Income Tax Act was invalid and void-ab-initio due to the lack of correlation between the seized documents and the relevant assessment year. The assessee relied on the judgment of the Hon'ble Delhi High Court in the case of Principal CIT(C)-2 Vs. Index Securities (P) Ltd. 86 Taxmann.com 84 (Del.) to support this claim. The assessee further argued that there should be two satisfaction notes: one by the assessing officer of the searched party and another by the assessing officer of the assessee, as supported by the judgment of the jurisdictional High Court in CIT Vs. Machmen (2015) 60 Taxman.com 484 (MP).

The Tribunal noted that the Commissioner of Income Tax (Appeals) [CIT(A)] had dismissed the ground on the basis that no objection was raised at the time of receipt of the notice and that the income tax return was filed in compliance with the notice issued under Section 153C. However, the Tribunal emphasized that statutory authorities must act in accordance with the law and that individual views cannot replace statutory provisions. The Tribunal found that the CIT(A) did not adequately address the submissions regarding the validity of the proceedings initiated under Section 153C.

The Tribunal referred to Section 153C of the Act and noted that both the assessing officer of the searched party and the assessing officer of the other person must be satisfied with the material seized. The Tribunal cited the judgment of the jurisdictional High Court in CIT Vs. Mechmen, which held that satisfaction must be recorded at both stages. The revenue failed to rebut the contention that there was no valid satisfaction as required under Section 153C. The Tribunal concluded that the proceedings under Section 153C were not validly initiated, as the document on which the proceedings were based did not pertain to the assessment year under appeal. Additionally, the document seized was not incriminating, as the income from the sale of land was already offered in the income tax return for the assessment year 2012-13.

2. Confirmation of the Addition of ?4,08,131/- as Unexplained Investment:

The assessee challenged the addition of ?4,08,131/- made under Section 69 of the Act for undisclosed investment in the purchase of land. The assessee submitted a cash flow statement and balance sheet to the CIT(A), which showed an opening balance of ?4,36,261/- as on 1.4.2009. The assessee also provided evidence of previous property purchases in 2002 and 2006, as well as subsequent purchases, to demonstrate sufficient sources of income for the investment.

The Tribunal found that the cash book submitted by the assessee could not be disbelieved, as the assessee had sufficient sources of income to make the investment. The Tribunal concluded that the addition made by the assessing officer was not justified, and the assessee succeeded on this ground.

Conclusion:

The Tribunal allowed the appeal filed by the assessee, quashing the proceedings initiated under Section 153C and the assessment order passed. The addition of ?4,08,131/- as unexplained investment was also deleted. The order was pronounced in the open court on 18.07.2019.