2021 (10) TMI 740 - AT - Income Tax

Assessment u/s 153A - satisfaction note of the Assessing Officer for acquiring jurisdiction u/s 153C - addition based on any incriminating material or not? - whether all the documents which form part of satisfaction note were duly recorded and disclosed in the return of income filed prior to recording of satisfaction note or even the date of search? - Whether the documents so referred in the satisfaction note are in nature of incriminating documents, which can lead to an inference that any undisclosed income has escaped assessment or there is any element of undisclosed income so as to be roped in assessment under section 153C for the assessment year which is unabated i.e. final? - HELD THAT - It is an admitted fact that the documents so referred in the satisfaction note are the only documents which form the basis and edifice for acquiring jurisdiction under section 153C of the Act and there are no other documents which were found and seized. Before adverting to the documents so referred in the satisfaction note and our analysis with regards to the same thereafter, it would be worthwhile to note that it is now a well settled proposition of law that seized documents must be incriminating and must relate to assessment year whose assessment are sought to be reopened u/s.153C. This principle has been settled in the case of Singhad Technical Education Society 2017 (8) TMI 1298 - SUPREME COURT . Thus we hold that the concluded assessments cannot be interfered unless there is incriminating material discovered from the seized documents belonging or pertaining to the assessee, and further, no additions can be made where the assessments are framed u/s.153C for unabated year i.e. where no assessment is pending. The seized documents must at least clearly point out that there is some undisclosed income, which here in this case, as is discussed below, are not in the nature of incriminating material so as to warrant any addition - additions made by the Assessing Officer are beyond the scope of Section 153C r.w.s. 153A. - Decided in favour of assessee.

Issues Involved:
1. Jurisdiction under Section 153C in the absence of incriminating material.
2. Validity of assessment under Section 153C read with Section 153A without the issue of notice under Section 143(2).
3. Additions based on goodwill created on account of amalgamation.
4. Borrowed satisfaction and lack of prior approval under Section 153D.

Detailed Analysis:

1. Jurisdiction under Section 153C in the Absence of Incriminating Material:
The Tribunal examined whether the documents referred to in the satisfaction note were incriminating and could lead to an inference of undisclosed income. The documents included lease deeds, valuation reports, sale deeds, and business transfer agreements, among others. It was found that these documents were already part of the books of accounts and disclosed in the returns of income filed before the recording of the satisfaction note or even the date of search. The Tribunal held that these documents could not be termed as "incriminating material" as they did not indicate any undisclosed income. The Tribunal relied on several judgments, including the Supreme Court's decision in CIT vs. Singhad Technical Education Society (397 ITR 344) and the Delhi High Court's decision in CIT vs. RRJ Securities Ltd. (380 ITR 612), which established that the scope of assessment under Section 153C is restricted to incriminating material.

2. Validity of Assessment under Section 153C read with Section 153A without the Issue of Notice under Section 143(2):
The Tribunal noted that the assumption of jurisdiction under Section 153C without handing over the seized documents to the Assessing Officer of the appellant and framing of assessment without issuing a notice under Section 143(2) was illegal and unsustainable. The Tribunal emphasized that the satisfaction note did not mention the existence of any "undisclosed income" belonging to the assessee company, thus vitiating the invocation of jurisdiction.

3. Additions Based on Goodwill Created on Account of Amalgamation:
The Tribunal examined the addition made by reducing the goodwill created on account of the amalgamation of ?1,75,52,16,915/- while working out the net worth under Section 50B of the Income Tax Act. The Tribunal found that the amalgamation was effective from 01.04.2014, as per the Delhi High Court's order dated 05.05.2015, and the facts were duly disclosed in the books of accounts and returns of income filed by the assessee. The Tribunal held that the addition made by the Assessing Officer was not based on any incriminating material and was beyond the scope of assessment under Section 153C.

4. Borrowed Satisfaction and Lack of Prior Approval under Section 153D:
The Tribunal addressed the issue of borrowed satisfaction and the lack of prior approval under Section 153D. It was argued that the satisfaction note was recorded based on borrowed satisfaction and without providing the reasons to the appellant. The Tribunal found that the Assessing Officer did not point out any document that was not disclosed by the assessee prior to recording the satisfaction note. The Tribunal held that the assessment order was void ab initio due to the lack of incriminating material and the absence of prior approval under Section 153D.

Conclusion:
The Tribunal concluded that the additions made by the Assessing Officer were beyond the scope of Section 153C read with Section 153A, as they were not based on any incriminating material. The Tribunal allowed the appeals of the assessee and dismissed the appeals of the Revenue. The assessment orders were set aside on legal grounds, and there was no need to decide the additions on merits, which were left for academic discussion only.

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