2020 (1) TMI 85 - AT - Income Tax

Assessment u/s 153C - satisfaction note prepared prior to the issuance of notice to the searched person - HELD THAT - In this case, for assessment year 2007-08, the notice u/s 153C has been issued prior to the issuance of notice u/s 153A to the searched person. The CBDT Circular No.24/2015 dated 31.12.2015 has instructed that guidelines issued by the Hon ble Apex Court in the case of Calcutta Knitwears 2014 (4) TMI 33 - SUPREME COURT will also be applicable to proceedings u/s 153C and, therefore, we are afraid that the Revenue has no case in terms of the judgment of the Hon ble Apex Court in the case of CIT vs. Calcutta Knitwears (supra) and the CBDT Circular No.24/2015 dated 31.12.2015. Since, undisputedly, the satisfaction note in the case of the assessee was prepared prior to the issuance of notice to the searched person, the assessment for assessment year 2007-08 becomes null and void because the assumption of jurisdiction u/s 153C is defective. Accordingly, we have no option but to hold that the assessment framed for assessment year 2007-08 was without jurisdiction and is, therefore, unsustainable in law. Non issuance of notice u/s 153C - AY 008-09 - HELD THAT - We note that the impugned assessment order has been passed u/s 143(3) and no notice u/s 153C has been issued although this year falls within the period of six years when counted from the date of recording of satisfaction note which is deemed date of search. The Assessing Officer should have framed the assessment u/s 153C of the Act for assessment year 2008-09 also and should have at the time of initiating the proceedings against the assessee issued notice u/s 153C of the Act which has not so be done in this case. The issuance of notice u/s 153C is mandatory and is a pre-condition if the case falls within the block period of six years. The assessment order for assessment year 2008-09 is, therefore, unsustainable in the eyes of law. Accordingly, we are left with no option but to quash the assessment for assessment year 2008-09 also. Penalty u/s 271(1)(c) - We have decided the quantum appeal for assessment year 2008-09 in favour of the assessee and have quashed the assessment, the consequential penalty imposed u/s 271(1)(c) also stands deleted

Issues Involved:

1. Jurisdiction of assessment proceedings under section 153C of the Income Tax Act, 1961.
2. Validity and evidentiary value of an unsigned photocopied agreement.
3. Presumption of ownership of seized documents under section 292C.
4. Admission of additional evidence under Rule 46A.
5. Legality of additions made under sections 69A and 271(1)(c) of the Income Tax Act.
6. Adequacy of opportunity provided to produce evidence and witnesses.
7. Principles of natural justice in assessment and penalty proceedings.

Detailed Analysis:

1. Jurisdiction of Assessment Proceedings under Section 153C:

For Assessment Year 2007-08, the Tribunal noted that the notice under section 153C was issued on 27.11.2008, prior to the issuance of notice under section 153A to the searched person on 06.01.2009. The Tribunal held that issuance of notice under section 153C cannot precede the issuance of notice under section 153A, as per the guidelines laid down by the Hon’ble Supreme Court in CIT vs. Calcutta Knitwears and CBDT Circular No.24/2015. Consequently, the assessment for AY 2007-08 was deemed null and void due to defective jurisdiction.

For Assessment Year 2008-09, it was observed that no notice under section 153C was issued, and only notice under section 143(2) was served. The Tribunal held that the assessment should have been framed under section 153C, as the year falls within the six-year period from the date of recording the satisfaction note. The absence of a mandatory notice under section 153C rendered the assessment unsustainable.

2. Validity and Evidentiary Value of an Unsigned Photocopied Agreement:

The Tribunal noted that the agreement seized was not signed on behalf of the assessee, and therefore, it lacked evidentiary value. The assessee denied the existence of such an agreement, and the individual purportedly representing the assessee also denied knowledge of the agreement. The Tribunal referenced the judgment in CIT v. Kulwant Rai, which supports the notion that unsigned documents cannot be treated as evidence against the assessee.

3. Presumption of Ownership of Seized Documents under Section 292C:

The Tribunal held that the presumption under section 292C could only be raised against the individual from whom the document was seized, i.e., Sh. Vipin Verma, and not the assessee. Since no corroborating evidence was presented, the Tribunal ruled that the document could not be presumed to belong to the assessee, and thus, no addition could be made solely based on such a document.

4. Admission of Additional Evidence under Rule 46A:

The Tribunal noted that the assessee had produced the balance sheet of M/s V.M. Reality as additional evidence under Rule 46A, which was not admitted by the CIT(A). The Tribunal found that the CIT(A) was not justified in refusing to admit this additional evidence, which could have been relevant for the case.

5. Legality of Additions Made under Sections 69A and 271(1)(c):

For AY 2007-08, the addition of ?70 lakhs was made based on the alleged cash payment mentioned in the unsigned agreement. For AY 2008-09, the addition of ?1.98 crores was made on account of unverifiable cash credits. The Tribunal found these additions to be based on conjectures and surmises without proper corroboration. Consequently, the penalties imposed under section 271(1)(c) were also deemed unsustainable.

6. Adequacy of Opportunity Provided to Produce Evidence and Witnesses:

The Tribunal noted that the assessee was not given adequate opportunity to produce cash creditors and other relevant evidence. The AO's rejection of explanations without proper examination of the evidence provided was deemed unjustified. The Tribunal emphasized the importance of giving the assessee a fair opportunity to present their case.

7. Principles of Natural Justice in Assessment and Penalty Proceedings:

The Tribunal highlighted breaches of natural justice, such as not providing adequate opportunity to the assessee and making arbitrary rejections of evidence. The Tribunal held that the findings of the CIT(A) and the AO were not sustainable in law due to these procedural lapses.

Conclusion:

The Tribunal allowed all four appeals of the assessee, quashing the assessments and deleting the penalties for both AY 2007-08 and AY 2008-09. The judgments emphasized the importance of proper jurisdiction, evidentiary value, and adherence to principles of natural justice in tax assessment and penalty proceedings.

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