2020 (3) TMI 116 - AT - Income Tax

Assessment u/s 153C - addition based on papers found in search - HELD THAT - Papers found and seized relates to the estimations, but not related to any income or expenditure of the assessee or investment made by the assessee which has bearing on the income. The AO did not make any addition on the basis of the loose sheets found during the course of search. DR also did not bring any decision of the Hon ble Jurisdictional High court reversing the order of this Tribunal. Therefore, respectfully following the view taken by this Tribunal in the case of Sri Pattapagalu Venkata Rao 2019 (7) TMI 1030 - ITAT VISAKHAPATNAM , we hold that the AO issued notice u/s 153C without having incriminating material or the material having impact on determination of income which is bad in law and hence, we do not see any reason to interfere with the order of the Ld.CIT(A) and the same is upheld. - Decided in favour of assessee

Issues Involved:
1. Validity of notice issued u/s 153C of the Income Tax Act.
2. Whether the seized material qualifies as incriminating material.
3. Jurisdiction and procedural validity of the seized material.
4. Satisfaction note recording by the Assessing Officer (AO).
5. Relevance of completed assessments and pending assessments.

Detailed Analysis:

1. Validity of Notice Issued u/s 153C of the Income Tax Act:
The primary issue revolves around whether the notice issued u/s 153C was valid. The Commissioner of Income Tax (Appeals) [CIT(A)] quashed the notice, stating that no incriminating material was seized that related to the relevant assessment years. The CIT(A) examined the seized material and found it did not pertain to the impugned assessment years nor impact the determination of the income of the assessee. Consequently, the assessments made u/s 153C r.w.s. 143(3) were declared void-ab-initio.

2. Whether the Seized Material Qualifies as Incriminating Material:
The Department argued that the seized material had a bearing on the income of the assessee. However, the CIT(A) and the Tribunal observed that the seized documents were merely estimations and proposals sent to the state government, not actual transactions or records of income, expenditure, or investments by the assessee. The Tribunal found that the loose sheets did not indicate any sales, expenditure, or investments that could impact the income determination. The AO did not make any additions based on the seized material, reinforcing the view that the material was not incriminating.

3. Jurisdiction and Procedural Validity of the Seized Material:
The assessee argued that the material was impounded during a survey u/s 133A and later shown as seized during a search, which was procedurally incorrect. The Tribunal did not find it necessary to adjudicate this issue since the primary ground of the absence of incriminating material was sufficient to quash the notice issued u/s 153C.

4. Satisfaction Note Recording by the Assessing Officer (AO):
The assessee contended that the AO of the searched person did not record the necessary satisfaction in the order sheet, questioning the validity of the notice. The Department argued that satisfaction was recorded in a separate note, and the absence of an order sheet entry did not invalidate the satisfaction. The Tribunal did not delve deeply into this issue, as the absence of incriminating material was decisive.

5. Relevance of Completed Assessments and Pending Assessments:
The assessee argued that all assessments were completed and there were no pending assessments as on the date of transfer of material to the AO, implying that completed assessments cannot be disturbed without incriminating material. The Tribunal agreed, referencing the Supreme Court's decision in the case of Sinhgad Technical Education Society, which held that action u/s 153C without incriminating material is invalid.

Conclusion:
The Tribunal upheld the CIT(A)'s decision to quash the notice issued u/s 153C, concluding that the seized material did not qualify as incriminating and had no bearing on the income of the assessee. Consequently, the appeals of the revenue were dismissed, and the cross objections of the assessee were also dismissed as the primary issue was resolved in favor of the assessee. The order was pronounced in the open court on 28th February 2020.

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