2019 (7) TMI 1447 - HC - Income Tax

Assessment u/s 153C - duty of AO to establish that to whom the documents, found in the search proceedings, belongs to - HELD THAT - Unless and until it is established that the documents do not belong to the searched person, the provisions of section 153C do not get attracted because the very expression used in section 153 C is that where the Assessing Officer is satisfied that any money, bullion, jewellery or other valuable article or thing or books of account or documents seized or requisitioned belongs or belong to a person other than the person referred to in section 153 A . In view of this phrase, it is necessary that before the provisions of section 153 C can be invoked, the Assessing officer of the searched person must be satisfied that the seized material ( which included documents) does not belong to the person referred to in section 153 A, i.e., the searched person. In the satisfaction note, which is the subject matter of these writ petitions, there is nothing therein to indicate that the seized documents do not belong to the Jaipuria Group. This even apart from the fact that there is no disclaimer on the part of the Jaipuria Group insofar as these documents are concerned. Assessee relied on circular No. 24/2015 dated 31.12.2015, issued by the CBDT, in which, the Board following the decision of Hon'ble Supreme Court in case of M/s Calcutta Knitwear's 2014 (4) TMI 33 - SUPREME COURT has directed that where the satisfaction by the Assessing officer of the person searched and other person is not found recorded, the Department should not press that mater in Appeal. Thus, keeping in view rival submissions in light of judicial pronouncements as discussed above and CBDT Circular (supra) the assessment in the assessee case for the assessment year under consideration is held as illegal and void-ab initio. Accordingly, the grounds raised by the assessee relating to applicability of section 153 C are allowed.

Summary

Issues:
1. Whether the Income Tax Appellate Tribunal was right in holding the assessment illegal and void-abinitio?

Analysis:
The Tax Appeal under Section 260A of the Income Tax Act, 1961, was filed by the Revenue against the order passed by the Income Tax Appellate Tribunal. The assessment under Section 143(3) r.w.s 153C of the I.T Act was finalized, adding an amount as unexplained expenditure under Section 69C of the Act. The assessee appealed before the CIT(A), who dismissed the appeal. Subsequently, the assessee appealed before the ITAT, which allowed the appeal, declaring the assessment as illegal and void ab-initio. The Revenue then approached the High Court with the present Appeal.

The principal argument raised by the assessee before the ITAT was regarding the mandatory requirement of recording satisfaction under Section 153C of the Income Tax Act. The ITAT noted that the Assessing Officer did not record any satisfaction regarding the seized documents belonging to the assessee. The ITAT referred to relevant case laws and circulars, emphasizing the necessity of the AO of the searched person being satisfied that the seized material does not belong to the searched person before invoking Section 153C. The ITAT concluded that the assessment proceedings initiated without recording satisfaction by the AO were bad in law.

The High Court, after considering the submissions and materials on record, upheld the ITAT's decision. It noted that no error of law was committed by the Tribunal in holding the assessment illegal and void-abinitio. The High Court refused to disturb the Tribunal's finding of fact and dismissed the Appeal filed by the Revenue. The Court concurred with the ITAT's conclusion that the assessment in the assessee's case for the relevant assessment year was illegal and void-abinitio.