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2020 (11) TMI 168 - AT - Income TaxAssessment u/s 153A - Need for spelling out Satisfaction note - requisite satisfaction in terms of section 153C - incriminating materials found in search or not? - HELD THAT - Since the original scrutiny assessment u/s 143(3) of the Act for AY 2014-15 in the case of assessee foundation was framed on 31.12.2016, therefore, the assessment was not pending before AO on the date when Satisfaction Note was prepared, so as per the settled position of law, the AO ought to have discussed in the Satisfaction note the jurisdictional facts i.e. incriminating materials qua the assessee qua AY 2014-15, for invoking section 153C jurisdiction. As noted earlier there is no whisper about M/s PHPL opting for IDS Scheme, 2016 and according to us, the ld. CIT(A) while adjudicating the legal issue of the validity of the satisfaction note prepared by the AO to invoke 153C against the assessee foundation, cannot resort to post mortem and resurrect a bad satisfaction note because AO could not have usurped the jurisdiction u/s 153C without preparing a valid Satisfaction Note and therefore AO s action to invoke the jurisdiction u/s 153C in respect of AY 2014-15 was ab-initio void and therefore the CIT(A) cannot correct a jurisdictional issue and therefore this action of ld. CIT(A) was itself untenable in the eyes of law. Even if for argument s sake, the ld. CITDR s contention regarding M/s PHPL opting for IDS Scheme, 2016 is considered we find force in the argument of ld. A.R that Shri Ladia s statement during the survey on 23.09.2016 that M/s PHPL has received back the donated amount of ₹ 50 lacs from the assessee foundation does not corroborate with their subsequent action of only disclosing an amount of ₹ 25 lacs for AY 2014-15 during the IDS Scheme, 2016. We note that for AY 2013-14 to 2016-17 M/s PHPL has disclosed in IDS Scheme, 2016, a total of ₹ 71.25 lacs which fact goes on to show that M/s PHPL had enough money in its kitty to give donation to assessee foundation. Therefore, the action of M/s PHPL declaring ₹ 25 lacs as undisclosed income for AY 2014-15 cannot be considered to justify the action of ld. CIT(A) in confirming the addition of ₹ 50 lacs as against the assessee foundation. The contentions raised by the Ld. CIT DR are devoid of merits and so it is rejected and therefore on merits also the assessee succeeds. However, since we allow the legal issue raised by the assessee, we hold that the action of AO to invoke section 153C of the Act was without jurisdiction and, therefore, the impugned action of AO to issue notice u/s. 153C of the Act is null in the eyes of law and therefore ab-initio void and so it is quashed. - Decided in favour of assessee.
Issues Involved:
1. Jurisdiction of AO under Section 153C of the Income Tax Act. 2. Validity of additions made without incriminating material. 3. Reliance on third-party statements recorded during survey. 4. The impact of the Income Disclosure Scheme (IDS) on the assessment. Detailed Analysis: 1. Jurisdiction of AO under Section 153C of the Income Tax Act: The primary issue was whether the Assessing Officer (AO) had the jurisdiction to assess the assessee under Section 153C of the Income Tax Act. The assessee argued that the AO did not record a valid satisfaction note before assuming jurisdiction under Section 153C. The Tribunal noted that for the AO to assume jurisdiction under Section 153C, there must be a valid satisfaction note indicating that the seized documents or assets belonged to a person other than the searched person and had a bearing on the determination of the total income of such other person. The Tribunal found that the satisfaction note prepared by the AO did not meet these requirements as the documents seized were already part of the assessee's regular books of accounts and were not new discoveries during the search. Consequently, the Tribunal held that the AO's action to invoke Section 153C was ab initio void. 2. Validity of Additions Made Without Incriminating Material: The Tribunal examined whether the additions made by the AO were based on incriminating material found during the search. It was noted that the assessment for AY 2014-15 was completed, and therefore, any addition under Section 153C could only be made based on incriminating material. The Tribunal found that the documents seized (ID MSL 3/4/5) were counterfoils of donation receipts already recorded in the assessee's books of accounts and could not be considered incriminating material. The Tribunal relied on the judgment of the Hon'ble Delhi High Court in CIT vs. Kabul Chawla, which held that completed assessments could only be interfered with based on incriminating material unearthed during the search. Since no such material was found, the additions made by the AO were held to be invalid. 3. Reliance on Third-Party Statements Recorded During Survey: The AO had relied on the statement of Shri C. K. Ladia, recorded under Section 131 during a survey, to make the addition of ?50 lakhs as a bogus donation. The Tribunal noted that the statement was recorded behind the assessee's back, and the assessee was not given an opportunity to cross-examine Shri Ladia. The Tribunal held that reliance on such a statement without providing the assessee an opportunity to cross-examine violated the principles of natural justice. The Tribunal referred to the Hon'ble Supreme Court's decision in Andaman Timber Industries vs. CCE, which emphasized the necessity of cross-examination to uphold the principles of natural justice. 4. The Impact of the Income Disclosure Scheme (IDS) on the Assessment: The AO and CIT(A) had linked the amount disclosed by M/s Parthiba Holding Pvt. Ltd. under the IDS to the donation received by the assessee. The Tribunal found that this fact was not mentioned in the satisfaction note or the assessment order, and it came to light only during the remand proceedings. The Tribunal held that the AO could not retrospectively justify the assumption of jurisdiction under Section 153C based on facts not mentioned in the satisfaction note. Additionally, the Tribunal noted that M/s Parthiba Holding Pvt. Ltd. had disclosed ?25 lakhs under the IDS, which contradicted the statement that ?50 lakhs was returned in cash. This discrepancy further weakened the AO's case. Conclusion: The Tribunal allowed the appeals for both AY 2014-15 and AY 2016-17, holding that the AO's assumption of jurisdiction under Section 153C was invalid due to the lack of incriminating material and the violation of principles of natural justice. The additions made by the AO were quashed.
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