2024 (1) TMI 52 - AT - Income Tax

Assessment u/s 153A - sufficiency of documents found in search from assessee or not? - HELD THAT - Undisputedly, the document on the basis of which addition has been made was not recovered from the search upon assessee but from the premises of M/s. Zoom Developers Pvt. Ltd. In such circumstances, assessment should have been framed u/s 153C of the Act following the proper procedure as per section 153C of the Act. Having not followed the mandate of section 153C of the Act, Revenue has committed fatal error and on this account assessment is liable to be quashed. As also the plea of the assessee that the amount has been already added in the assessment of M/s. Zoom Developers Pvt. Ltd. In such circumstances, the same amount cannot be again added in hands of the assessee. For this proposition, we refer to the decision of Surya Agrotech Infrastructure Ltd. order 2023 (9) TMI 391 - DELHI HIGH COURT where it was held that when undisclosed income already having been taxed in hands of Flagship Company the same could not be again subjected to tax in the hands of assessee company. This case law is applicable in this case and the sum which has been taxed in the hands of Zoom Developers Pvt. Ltd. cannot again be taxed in the hands of assessee. Thus, the addition needs to be deleted on this count also.

Summary

Issues involved:
The issues involved in this case include the jurisdiction of the assessing officer under section 153A, the legality of the addition made to the income of the assessee, the absence of incriminating material found during the search, the validity of the notice issued under section 143(2), and the proper procedure for framing assessments under section 153C.

Jurisdiction under section 153A:
The appeal was directed against the order of the Learned Commissioner of Income Tax (Appeals) pertaining to Assessment Year 2009-10. The appellant challenged the assumption of jurisdiction under section 153A and framing of assessment under section 153A/143(3) without any incriminating material found during the search. The appellant contended that the assessing officer erred in relying on material found during the search on a third party, M/s Zoom Developers Pvt. Ltd, without following the provisions of section 153C of the Income Tax Act, 1961. The Tribunal observed that the incriminating documents were recovered from the business premises of M/s Zoom Developers Ltd, not the assessee, leading to a fatal error in the assessment under section 153A.

Legality of Addition to Income:
The assessing officer made an addition of Rs. 24,65,000 to the income of the assessee based on incriminating documents found at the office of M/s Zoom Developers Pvt. Ltd. The assessee argued that this amount was related to expenses incurred through the assessee but accounted for by the branch office, not personal income. The Tribunal found that the addition lacked a legal basis as the incriminating material belonged to the company, not the assessee, and had already been taxed in the company's assessment. Citing relevant case laws, the Tribunal concluded that the addition should be deleted as the same income cannot be taxed twice.

Absence of Incriminating Material:
The Tribunal noted that the incriminating documents were not found during the search on the assessee but on the premises of M/s Zoom Developers Pvt. Ltd. As per the statutory requirement of Section 153C, the assessment should have been framed under this section, not 153A. Failure to follow this procedure rendered the assessment liable to be quashed. The Tribunal relied on Delhi High Court decisions to support this conclusion and emphasized the importance of following the proper legal procedures.

Validity of Notice under section 143(2):
The appellant challenged the passing of the Assessment Order without issuing a mandatory notice under section 143(2) of the Income Tax Act, 1961. The Tribunal found that the notice issued prior to the filing of the income tax return was illegal and without jurisdiction. This procedural error raised further questions about the validity of the assessment and the legal basis for the additions made to the assessee's income.

Proper Procedure under section 153C:
The Tribunal highlighted the importance of following the proper procedure under section 153C of the Income Tax Act for framing assessments based on incriminating material found during a search. Failure to adhere to this procedure, as seen in this case, led to a fatal error in the assessment under section 153A. Citing relevant case laws, the Tribunal emphasized the need for strict compliance with statutory requirements to ensure the legality and validity of assessments.