2019 (11) TMI 33 - AT - Income Tax

Validity of initiation of proceedings u/s.153C - without having incriminating material and without recording the reasons for initiation of proceedings in the case of the searched person - HELD THAT - In the instant case, there is no dispute that there is no satisfaction recorded by the AO of the searched person. No material was placed before us to show that the satisfaction was recorded by the AO of searched person before transfer of the material to the officer having jurisdiction over such other person in this case, the assessee. Hence we hold that the assumption of jurisdiction without recording the reasons in the case of searched person is invalid. Accordingly, we quash the notices issued u/s.153C of the Act and cancel the assessments framed u/s.143(3) r.w.s. 153C - Decided in favour of assessee Agricultural income in the hands of the HUF - assessee stated that the lands situated at Vattinagulapally village does not belong to HUF and belonged to individual and acquired by inheritance through gift deed from his mother - HELD THAT - There is no case for considering the same as agricultural income in the hands of the HUF. Further it is seen from the orders of ITAT that the said lands were given to M/s.Dakshin Shelters Pvt. Ltd. 2012 (5) TMI 649 - ITAT HYDERABAD for the purpose of development and the assessee came to know that the developer already started real estate project and incurred substantial expenditure for development of the same. The lands were stated to be mountainous lands. This fact finding was given by the ITAT in its order (supra). Except the land revenue authorities, no other evidence brought by the assessee for establishing the agricultural income. Therefore, we find no reason to interfere with the orders of the authorities below and accordingly, we, dismiss this appeal of assessee.

Summary

Issues Involved:
1. Validity of initiation of proceedings under Section 153C without incriminating material.
2. Validity of assessment framed under Section 153C without recording reasons for initiation.
3. Treatment of agricultural income as 'income from other sources.'

Issue-wise Detailed Analysis:

1. Validity of initiation of proceedings under Section 153C without incriminating material:
The assessee contended that the seized material referred to by the Assessing Officer (AO) did not belong to them, making the initiation of proceedings under Section 153C invalid. The AO issued notices under Section 153C based on documents found during a search at the premises of individuals related to the assessee. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's decision, citing documentary evidence and statements recorded from a relative of the assessee. However, the Tribunal found that the Panchanama and annexures did not indicate that the seized material belonged to the assessee. The Tribunal noted that the Department failed to provide evidence that satisfaction was recorded in the case of the searched person as required under Section 153A/153C. Therefore, the Tribunal admitted the additional grounds raised by the assessee and quashed the notices issued under Section 153C, rendering the assessments invalid.

2. Validity of assessment framed under Section 153C without recording reasons for initiation:
The assessee argued that the AO did not record reasons in the case of the searched person for initiating proceedings under Section 153C. The Tribunal emphasized that it is mandatory for the AO of the searched person to record satisfaction that the seized material belongs to another person before transferring the material to the AO of such other person. The Tribunal cited multiple judicial precedents, including the Hon'ble Supreme Court and High Courts, which held that recording satisfaction is a pre-condition for assuming jurisdiction under Section 153C. The Tribunal found no evidence of such satisfaction being recorded in the case of the searched person and quashed the notices issued under Section 153C, thereby canceling the assessments.

3. Treatment of agricultural income as 'income from other sources':
For the assessment year 2008-09, the AO treated the agricultural income declared by the assessee as 'income from other sources,' citing that the land was vacant and no agricultural activities were carried out. The CIT(A) upheld this decision. The assessee argued that the land was characterized as 'agricultural' in government records and had been used for agriculture in previous years. However, the Tribunal noted that the land in question was given for development to M/s. Dakshin Shelters Pvt. Ltd., and substantial development activities had already commenced. The Tribunal also observed that the lands were mountainous and not suitable for cultivation. Therefore, the Tribunal found no reason to interfere with the lower authorities' decision and dismissed the assessee's appeal on this ground.

Conclusion:
The Tribunal quashed the notices issued under Section 153C and canceled the consequent assessments due to the lack of recorded satisfaction in the case of the searched person. The Tribunal also upheld the lower authorities' decision to treat the agricultural income as 'income from other sources' for the assessment year 2008-09.