2019 (10) TMI 999 - AT - Income Tax

Assessment u/s 153C - Addition u/s 68 - HELD THAT - Assessment order reveals that the AO has carried out the entire exercise of assessment mechanically because satisfaction note recorded by AO of the assessee is diametrically opposite/different from the satisfaction note recorded by the AO of searched person. Satisfaction note recorded by the AO in case of the assessee is pertaining to some entries of Green Valley Resorts, Blooming Dates Resort and Kuber Breweries but bearing no mention of receiving any share application money from Binapani Merchandise. It appears that AO has lost sight of the provisions contained u/s 153C and has travelled beyond his jurisdiction without verifying the requirement that incriminating material has to be there to initiate the proceedings u/s 153C of the Act. Addition cannot be made on the basis of surrounding circumstances and statement recorded during the statement of Moolchand Malu and Vikas Kumar Agarwal recorded during the search proceedings as contended by ld. DR, hence the submissions made by the ld. DR and case laws relied upon are not applicable to the facts and circumstances of the case. We are of the considered view that the assessment framed u/s 153C is not sustainable in the eyes of law being without jurisdiction and also being time barred, hence hereby quashed without going into the merits of the case. - Decided in favour of assessee.

Issues Involved:
1. Violation of principles of natural justice.
2. Validity of the satisfaction note for initiating proceedings under Section 153C.
3. Reliance on unverified statements.
4. Addition on account of share capital and share premium.
5. Discharge of onus under Section 68.
6. Presence of incriminating documents.
7. Denial of cross-examination opportunity.
8. Legality and validity of the impugned assessment order.

Issue-wise Detailed Analysis:

1. Violation of Principles of Natural Justice:
The assessee argued that the CIT(A) upheld the impugned order without fair and objective application of mind, violating principles of natural justice. The Tribunal found that the assessment was framed based on a satisfaction note without incriminating evidence, which was against the principles of natural justice.

2. Validity of the Satisfaction Note for Initiating Proceedings under Section 153C:
The Tribunal noted that the satisfaction note recorded by the AO of the searched person did not discuss the document seized pertaining to the assessee. The AO made the addition based on material already supplied by the assessee, not on any incriminating material. The Tribunal referenced decisions in CIT vs. Index Securities and CIT vs. Singhad Technical Education, emphasizing that reassessment under Section 153C requires incriminating material found during the search.

3. Reliance on Unverified Statements:
The AO relied on the unverified statement of Shri Mul Chand Malu. The Tribunal found that the addition was made based on statements without providing the assessee an opportunity for cross-examination, which violated the principles of natural justice.

4. Addition on Account of Share Capital and Share Premium:
The AO added ?1,79,99,800/- on account of share capital and share premium, citing failure to provide necessary evidence to prove the identity, genuineness, and creditworthiness of the creditors. The Tribunal noted that the AO's addition was not based on any incriminating material found during the search.

5. Discharge of Onus under Section 68:
The assessee argued that it had discharged the onus under Section 68 by providing necessary documents. The Tribunal observed that the AO did not issue a notice under Section 143(2) within the prescribed time, and the assessment was not pending on the date of the search, thus the reassessment under Section 153C was not justified.

6. Presence of Incriminating Documents:
The Tribunal found that no incriminating documents were found during the search. The addition was made on the basis of documents already disclosed by the assessee in the original return of income, which cannot be reassessed under Section 153C.

7. Denial of Cross-Examination Opportunity:
The Tribunal noted that the AO did not provide the assessee an opportunity for cross-examination of the persons whose statements were relied upon, despite specific requests made by the assessee. This was a violation of the principles of natural justice.

8. Legality and Validity of the Impugned Assessment Order:
The Tribunal concluded that the assessment framed under Section 153C was without jurisdiction and time-barred. The satisfaction note recorded by the AO of the assessee was different from that recorded by the AO of the searched person, and the addition was made on non-incriminating material. Therefore, the assessment order was quashed.

Conclusion:
The Tribunal allowed the appeal filed by the assessee, quashing the assessment framed under Section 153C for being without jurisdiction and time-barred, and for violating principles of natural justice. The Tribunal emphasized the necessity of incriminating material for initiating proceedings under Section 153C and the importance of providing an opportunity for cross-examination.

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