2024 (2) TMI 116 - HC - Income Tax

Validity of proceedings u/s 153C - whether the assessee should be treated as a Searched Person or Other Person ? - Whether Loose Sheets and Diary have any evidentiary value? - HELD THAT - The entire allegation is made out on the basis of loose sheets of documents, which does not come under the ambit and scope of books of entry or as evidence under the Indian Evidence Act. It is established in law by the Hon'ble Apex Court in COMMON CAUSE AND OTHERS v. UNION OF INDIA 2017 (1) TMI 1164 - SUPREME COURT that a sheet of paper containing typed entries and in loose form, not shown to form part of the books of accounts regularly maintained by the assessee or his business entities, do not constitute material evidence. Following the law declared by the Hon'ble Apex Court, we are of the view that the action taken by the respondent / Revenue against the Assessee based on the material contained in the diaries/loose sheets, are contrary to the law declared by the Hon'ble Apex Court. In that view of the matter, impugned notices issued under Section 153C of the Act, based on the loose sheets/diaries are contrary to law, which require to be set aside in these writ appeals, as the same are void and illegal. Whether Centralization is in violation of Section 127 of the Income Tax Act, 1961, is valid? - officer of Bangalore Judicature sent Notice and Assessment order to the resident of Delhi - As per section 127 of the IT Act, before transferring the cases, a reasonable opportunity must be provided to the Assessee, which is evaded as per the papers provided herein, furthermore officer of Bangalore Judicature should not have sent Notice and Assessment order to the respondent who is a resident of Delhi which is in total violation of section 127 of the Act. Whether the Notice u/s 153C is valid herein? - As the title enunciates, Assessment of income of any other person , no search is sine qua non for issuance of proceedings under Section 153C of the Income Tax Act, 1961. The searched person in the instant case is the petitioner, as the search was conducted in his premises, which is evident from the Panchanama. The distinction between searched person and other person is misinterpreted in the case advanced by the Appellant-Revenue, as the premises of the Respondent was searched and documents pertaining to him were seized, thereby making him the searched person. The stipulated conditions have not been satisfied in the instant case. Thus, considering the arguments advanced by the counsel for both parties vehemently, the learned Single Judge opined that the impugned notices are liable to be set aside as sought for, which are arising out of wrong interpretation of Section 153C of the Act, and the entire case was remanded to the competent authority/ respondent-Revenue for fresh consideration and to pass appropriate orders in accordance with law, after affording reasonable opportunity to the petitioners in the writ petitions. The learned Single Judge having gone through the entire material available on record had observed that the initiation of proceedings by the respondent-Revenue based on the diaries/loose sheets against the petitioners in the writ petitions is without jurisdiction and contrary to the law declared by the Hon ble Apex Court and same cannot be touched upon while conducting de novo enquiry afresh. Whether writ petitions before the learned Single were not maintainable on the ground of alternative remedy and delay and laches? - In the given facts and circumstances of the case and also issues involved between the Revenue and the assessee respectively, normally, the High Court should not entertain writ petitions unless it is shown that there is something more in a case, something going to the root of the jurisdiction of the officer, something which would show that it would be a case of palpable injustice to the writ petitioner to force him to adopt the remedies provided by the statute. But, if the High Court had entertained a petition despite availability of an alternative remedy, it would not be justifiable for the High Court to dismiss the same on the ground of non-exhaustion of statutory remedies, unless the High Court finds that factual disputes are involved and it would not be desirable to deal with them in a writ petition. The learned Single Judge had referred to a plethora of decisions which were facilitated on behalf of the petitioners and respondent / Revenue and the same decisions have been referred to even in the present writ appeals. In the given facts and circumstances of the matter, it is relevant to refer to the case of NISHANT CONSTRUCTION (P) LTD. 2017 (3) TMI 1048 - ITAT AHMEDABAD wherein it is held that, in the absence of any corroborative evidence, loose sheet can at the most be termed as dumb document which did not contain full details about the dates, and its contents were not corroborated by any material and could not be relied upon and made the basis of addition. Reliance can also be placed on the judgment of the Panaji Bench of ITAT in the case of ABHAY KUMAR BHARAMGOUDA PATIL 2018 (9) TMI 209 - ITAT PANAJI wherein the judgment of the Apex Court was relied upon. In the instant case, the first issue raised by the Revenue is as regards the addition of income made by the Assessing Officer based on loose sheets found in the house of a third party. We find that the Revenue has not established the said loose sheets to be considered as evidence in law by producing corroborative evidence supported by judgments and findings. Further, since the statement made by Shri K. Rajendran under Section 132 of the IT Act is later retracted by him by filing an affidavit, the statement given by him does not hold any evidentiary value. The notice issued under Section 153C of the IT Act in respect of the Assessment year 2018-19 is not applicable, which is also supported by various judgments of the High Court. Further, the notice as regards the Assessment years 2015-16, 2016-17 and 2017-18 are also not applicable, as the total addition of income were made on the basis of loose sheets. Further, the panchanama or mahazar of all the loose sheets said to have been seized from the house of Shri Rajendran, are now unavailable and the learned counsel for the Revenue has no answer for the same. On these premise, the assessment order made for the Assessment years 2015-16, 2016-17, 2017-18 and 2018-19 requires to be quashed. Insofar as the contention as regards cash having been found in Premises, New Delhi during search, as per Section 292C of the IT Act, the presumption in law is that the cash seized belongs to the owner of the house from where it was seized. However, as regards the said cash which was found, the respondent / assessee had filed his Income Tax Return including the said cash as advance tax, and the same was also accepted by the Income Tax Department. Even the cross-examination of all the parties involved also proves that clearly the cash found belonged to Shri Sunil Kumar Sharma. As satisfaction note is required to be recorded under Section 153C of the IT Act for each Assessment Year and in the impugned proceedings, a consolidated satisfaction note has been recorded for different Assessment Years, which also vitiates the entire assessment proceedings. In view of all these findings, it is said that the appeals do not have any substance for seeking intervention as sought for by the appellant / Revenue. In the light of the above said Apex court Decisions and the Panchanama provided herein, it is deemed appropriate to conclude that the notice provided under Section 153C is bad in law. Decided against revenue.

Summary

Issues Involved:
1. Evidentiary Value of Loose Sheets and Diaries
2. Validity of Centralization under Section 127 of the Income Tax Act, 1961
3. Validity of Notice under Section 153C of the Income Tax Act, 1961

Summary of Judgment:

1. Evidentiary Value of Loose Sheets and Diaries:
The court examined whether loose sheets and diaries have any evidentiary value. It was determined that the income that escaped assessment and notices under Section 153C were solely issued based on loose sheets and documents termed as diaries found during the search. The court referred to the Supreme Court's decision in CBI vs. V.C. Shukla, which stated that loose sheets or scraps of paper cannot be termed as books and do not constitute material evidence. The court concluded that the loose sheets found at the house of Sri K. Rajendran lacked corroborative evidence connecting them to the respondents, rendering the impugned notices under Section 153C of the Act void and illegal.

2. Validity of Centralization under Section 127 of the Income Tax Act, 1961:
The court scrutinized whether the centralization of cases was in violation of Section 127 of the IT Act. It was found that the Revenue did not provide a reasonable opportunity to the assessee before transferring the case, as mandated by Section 127(1). The court highlighted that the transfer of jurisdiction without granting an opportunity of hearing to the assessee was incorrect, as per the statutory requirements and relevant case laws like M/S AJANTHA INDUSTRIES vs. CENTRAL BOARD OF DIRECT TAXES and DARSHAN JITENDRA JHAVERI vs. COMMISSIONER OF INCOME TAX. Consequently, the centralization was deemed invalid.

3. Validity of Notice under Section 153C of the Income Tax Act, 1961:
The court evaluated the essential conditions to invoke Section 153C, which include the existence of a primary person on whom the search is conducted, discovery of documents in the custody of the searched person relating to another person, and incriminating material found to invoke proceedings against the other person. The court found that these conditions were not satisfied in the instant case. The court referred to the Supreme Court's decision in SUPER MALLS (P.) LTD vs. PRINCIPAL COMMISSIONER OF INCOME TAX, which emphasized the necessity of a satisfaction note by the Assessing Officer of the searched person before transmitting documents to the Assessing Officer of the other person. The court concluded that the notice under Section 153C was not valid, as the stipulated conditions were not met.

Conclusion:
The court upheld the learned Single Judge's decision to quash the impugned notices and assessment orders issued under Section 153C of the IT Act. The appeals by the Revenue were rejected, confirming the Single Judge's order. The court emphasized the importance of adhering to statutory requirements and the principles of natural justice in tax proceedings.