2021 (8) TMI 1022 - AT - Income Tax

Validity of satisfaction and proceedings u/s.153C - Satisfaction recorded by the AO of searched person or not? - CIT(A) had held that nothing is incriminating in the documents found and, therefore, additions cannot be made if no incriminating documents exist and no undisclosed income found during the course of search - HELD THAT - As carefully perused the satisfaction note, written submissions of the appellant and also the contentions of the Ld. CIT (DR). A chart was furnished by the appellant, wherein every seized document was described as to its nature and it was emphasized that all the documents are either statutory records filed with the tax authorities, ROC or are audited accounts and books of the appellant. As perused the chart from which it clearly comes out that the documents belong to the appellant. However, they do not indicate any undisclosed income that has escaped assessment in the impugned assessment years. The appellant had also submitted a chart demonstrating that the assessment years in appeal are completed assessment years which has been reproduced in the submissions of the appellant. The tests that the documents belong to the appellant are duly verified. Section 153C of the Act also states that once the assessment is sought to be opened based on the documents belonging to the appellant, further assessment shall be made in accordance with the provisions of section 153A of the Act. There is a further requirement which states that the Assessing Officer must record a satisfaction note that documents must have a bearing on the determination of the total income of the appellant. Both the conditions lead to the conclusion that the documents found must be indicative of escapement of income and that the total income declared by the appellant in its return of income must necessarily be effected by the findings in the seized documents. From the perusal of the satisfaction note, it cannot be held that it is reflective of any undisclosed income or in the nature of incriminating belonging to the assessee the reason being none of the documents either pertained to the impugned assessment years or are already party of regular books of account. This is fairly clear from the assessee s explanation with regard to each and every document incorporated in the tabulated form in the following paragraphs. Most of the documents did not pertain to impugned assessment years or does not specify any assessment year or have already recorded in the books of account or a part of assessment years. The documents at least indicate some prima facie that there is same escapement of income or there is an element of undisclosed income, it cannot be said to be incriminating. If the documents found are available in public domain or are statutory records, same cannot be held to be incriminating. Order of the ld. CIT (A) holding that the additions made in the impugned assessment order are not based on incriminating material, is affirmed. Hence, the appeal of the Revenue is dismissed

Issues Involved:
1. Validity of satisfaction notes for proceedings under Section 153C.
2. Whether additions made under Section 153C must be based on incriminating material.
3. Interpretation of 'total income' under Sections 153C/153A.
4. Applicability of the decision in the case of Kabul Chawla.
5. Whether the documents found during the search were incriminating and pertained to the assessment years in question.

Detailed Analysis:

1. Validity of Satisfaction Notes for Proceedings under Section 153C:
The appellant challenged the satisfaction notes recorded before the issuance of notice under Section 153C of the Income Tax Act. The appellant argued that the documents found during the search were already recorded in their regular books of account and were not incriminating. The Tribunal examined the satisfaction notes and found that they did not indicate any undisclosed income or suggest any escapement of income by the appellant. The Tribunal noted that the documents mentioned in the satisfaction notes were statutory records, such as trial balances and income tax returns, which were already available in the public domain and could not be considered incriminating.

2. Whether Additions Made under Section 153C Must Be Based on Incriminating Material:
The Tribunal upheld the principle that for additions to be made under Section 153C, the documents found during the search must be incriminating and must pertain to the assessment years in question. The Tribunal relied on the judgment in the case of Kabul Chawla, which held that in the absence of any incriminating material, the Assessing Officer does not have jurisdiction to interfere in completed assessments. The Tribunal also referred to the Supreme Court's decision in the case of CIT vs. Singhad Technical Education Society, which emphasized that the seized documents must have a bearing on the determination of the total income of the assessee and must pertain to the relevant assessment years.

3. Interpretation of 'Total Income' under Sections 153C/153A:
The Tribunal discussed the interpretation of 'total income' under Sections 153C/153A. It was argued by the Department that the Assessing Officer has the power to assess or reassess the total income, including undisclosed income, irrespective of whether the documents found during the search are incriminating. However, the Tribunal rejected this argument, emphasizing that the documents must be indicative of undisclosed income and must pertain to the relevant assessment years. The Tribunal noted that the documents found in this case, such as trial balances and statutory records, did not indicate any undisclosed income and were already part of the regular books of account.

4. Applicability of the Decision in the Case of Kabul Chawla:
The Tribunal applied the decision in the case of Kabul Chawla, which held that in respect of completed assessments, additions cannot be made if no incriminating documents exist and no undisclosed income is found during the course of the search. The Tribunal found that the documents mentioned in the satisfaction notes were not incriminating and did not pertain to the assessment years in question. Therefore, the Tribunal held that the additions made by the Assessing Officer were not justified.

5. Whether the Documents Found During the Search Were Incriminating and Pertained to the Assessment Years in Question:
The Tribunal examined the nature of the documents found during the search and concluded that they were not incriminating. The documents included trial balances, income tax returns, and other statutory records, which were already available in the public domain and had no bearing on the determination of the total income of the appellant. The Tribunal noted that these documents did not pertain to the assessment years in question and did not indicate any undisclosed income. Therefore, the Tribunal upheld the order of the Commissioner of Income Tax (Appeals) in deleting the additions made by the Assessing Officer.

Conclusion:
The Tribunal dismissed the appeals filed by the Department, holding that the additions made under Section 153C were not based on any incriminating material and that the documents found during the search did not pertain to the assessment years in question. The Tribunal affirmed the order of the Commissioner of Income Tax (Appeals) in deleting the additions made by the Assessing Officer. The Tribunal emphasized that for additions to be made under Section 153C, the documents found during the search must be incriminating and must have a bearing on the determination of the total income of the assessee.

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