2024 (3) TMI 1359 - AT - Income Tax

Validity of Assessment u/s 153A - material seized during the course of search of another person - non-following the procedure under Section 153C - HELD THAT - After going through the judicial precedents and particularly the decision of Anand Kumar Jain 2021 (3) TMI 8 - DELHI HIGH COURT we are of the view that as per the mandate provided by the provisions of section 153C of the Act, the statement made by assessee cannot be a base for making assessment u/s. 153A of the Act on the basis of alleged incriminating material (being the statement recorded u/s. 132(4) of the Act) on the basis of which assessment was framed u/s. 153A of the Act rather assessment should have been framed u/s. 153C of the Act by recording a separate satisfaction. Hence, we find no infirmity in the order of CIT (A) and we affirm the order of CIT (A) on this legal issue. We upheld the order of CIT (A) quashing the assessment in all these three years i.e., assessment years 2013-14, 2014-15 2015-16. Therefore, these appeals of Revenue are dismissed.

Summary

Issues Involved:
1. Legality of additions made under Section 153A of the Income-tax Act, 1961 based on materials seized during the search of another person.
2. Validity of assessments framed under Section 153A without following the procedure under Section 153C.
3. Consideration of project completion method for recognizing income.

Issue-wise Detailed Analysis:

1. Legality of Additions under Section 153A:
The primary issue addressed in the judgment is whether additions can be made under Section 153A of the Income-tax Act, 1961 based on materials seized during a search conducted on another person. The Revenue argued that the addition of Rs. 3,20,00,000/- towards unaccounted income was justified as it was based on materials seized during the search of Dr. Murugu Sundaram and Dr. Raja Sundaram. However, the CIT (A) held that the addition was not sustainable under Section 153A as the material was seized from a third party, not the assessee. The CIT (A) emphasized that the assessment should have been made under Section 153C, which specifically deals with cases where documents seized during a search pertain to a person other than the one being searched.

2. Validity of Assessments under Section 153A without Section 153C:
The judgment further explores the procedural aspect, highlighting that the assessment framed under Section 153A was invalid due to the failure to invoke Section 153C. The CIT (A) noted that the Assessing Officer (AO) could not use the seized materials from another person's search to frame an assessment under Section 153A without first recording satisfaction and initiating proceedings under Section 153C. The Tribunal supported this view, referencing judicial precedents, including the Delhi High Court's decision in the case of Anand Kumar Jain, which underscored the necessity of following Section 153C when dealing with materials seized from a third party.

3. Consideration of Project Completion Method:
The assessee argued that the cash received was an advance for the sale of a portion of the BSR Mall and that income should be recognized only upon project completion. The AO had dismissed this argument, treating the cash as unaccounted income for the assessment year 2013-14. However, since the Tribunal upheld the CIT (A)'s decision to quash the assessment on jurisdictional grounds, the issue of project completion method became academic and was not adjudicated further.

Conclusion:
The Tribunal concluded that the assessments for the years 2013-14, 2014-15, and 2015-16 were invalid as they were framed under Section 153A based on materials seized from a third party without adhering to the procedural requirements of Section 153C. Consequently, the appeals by the Revenue were dismissed, and the cross objections by the assessee were deemed academic and dismissed. The judgment reinforces the importance of following statutory procedures when utilizing materials seized from third parties in tax assessments.