2023 (11) TMI 809 - HC - Income Tax

Validity of proceedings u/s 153C - incriminating material was found against assessee or not? - HELD THAT - As no incriminating material was found, the proceedings taken out against the assessees u/s 153C of the Act were not valid in the eyes of law, was the correct view. We may note that the Tribunal in this behalf relied upon the judgment rendered in PCIT v. Kabul Chawla, 2015 (9) TMI 80 - DELHI HIGH COURT . The said judgment has been affirmed by the Supreme Court in Principal Commissioner of Income Tax vs. Abhisar Buildwell Pvt. Ltd., 2023 (4) TMI 1056 - SUPREME COURT . Question of law as framed have to be answered against the appellant/revenue and in favour of the respondents/assessee.

Summary

Issues involved:
The judgment concerns the validity of proceedings initiated under Section 153C of the Income Tax Act, 1961 due to the absence of incriminating material found during a search operation. The key legal issues addressed are:
1. Impact of the Assessing Officer of the searched person not recording satisfaction.
2. Validity of proceedings in the absence of incriminating material.

Issue 1: Impact of AO not recording satisfaction:
The Tribunal found that the jurisdiction assumed by the Assessing Officer (AO) without recording satisfaction in the case of the searched person was not valid. The AO of the searched person did not record satisfaction, which was instead done by the AO of the other person, the assessee. This led to the assessment framed in the hands of the assessee being deemed invalid. The judgment cited Circular No. 24/2015 to emphasize the requirement for the AO of the searched person to record satisfaction, which was not done in this case. The AO of the searched person not recording satisfaction rendered the assessment in the hands of the assessee invalid.

Issue 2: Validity of proceedings without incriminating material:
Regarding the absence of incriminating material, the Tribunal noted that no such material was found during the search operation. The addition to the assessment was based on documents like the balance sheet, profit and loss account, and schedule of advances against supplies, which were not incriminating as they were part of the regular books of accounts and were already known to the department. The Tribunal concluded that since no incriminating material was found, the proceedings initiated under Section 153C of the Act against the assessees were not valid in the eyes of the law. This view was supported by the judgment in PCIT v. Kabul Chawla, affirmed by the Supreme Court in Principal Commissioner of Income Tax vs. Abhisar Buildwell Pvt. Ltd.

In summary, the High Court held that the proceedings initiated under Section 153C of the Income Tax Act, 1961 were invalid due to the absence of incriminating material and the failure of the Assessing Officer of the searched person to record satisfaction. The judgment favored the respondents/assessees based on the findings of the Tribunal on both legal issues.