2024 (10) TMI 1628 - AT - Income Tax

Initiation of proceedings u/s 153C being barred by time - falling beyond the period of six years from the date of recording of satisfaction note - HELD THAT - There is no dispute that in assessee s case for A.Y. 2008-09 notice u/s 153C was issued on 20.01.2016, therefore the assessment year 2008-09 is beyond the period of six assessment years. We find that coordinate Benches of the Tribunal have decided identical issue in favour of the assessee. Therefore, following binding precedent, we hold that the assessment made for A.Y. 2008-09 is barred by limitation, therefore, the same is hereby quashed. Ground is allowed. Framing of assessment u/s 143(3) which was otherwise required to be framed u/s 153C - Whether framing of assessment under a wrong provision of law is curable u/s 292BB of the Act? - HELD THAT - AO in opening observations noted that a search operation was carried out in pursuance of authorization by Director of Income Tax (Chandigarh) u/s 132(1)(A). Also noted that a notice u/s 153C r/w Section 153A was issued. In response thereto the assessee had filed his return of income. Thereafter, the AO assessed income u/s 143(3) of the Act. AO has also recorded that the assessment is made u/s 143(3) of the Income Tax Act. Thus, the assessment order is contrary to law and deserves to be quashed. Moreover, the AO could have rectified the order, if it was a clerical mistake. He did not do so. Be as it may, at this stage before us it is the order stated to have been passed u/s 143(3) of the Act, which is patently illegal. Estimation of income - bogus purchases - AO rejecting the books of account maintained by the assessee u/s 145(3) made the impugned addition - stand of assessee is that all details in the form of books of accounts, copy invoices, GR, bilties etc. were filed before the Assessing Officer and the AO without pointing out any specific defect therein rejected the books of account u/s 145(3) and made the impugned addition applying the GP rate of 0.24% on the total turnover - HELD THAT - We fail to understand the reasoning of AO as at one hand he stated sale/purchase claimed to have been made by M/s Kamal Trading Company as bogus then he proceeds to make addition on the basis of GP disclosed by the assessee without any justification and explanation. Such order, on merit as well, fails to meet the test of law and deserves to be quashed. The grounds raised by the assessee are allowed. Appeal of the assessee is allowed.

Summary

This judgment from the Appellate Tribunal ITAT Delhi addresses appeals concerning the assessment years 2008-09 and 2014-15. The appeals were filed by the assessee against the orders of the Commissioner of Income-tax (Appeals)-3, Gurgaon. The core issues revolve around the legality of the assessment proceedings initiated under Section 153C of the Income Tax Act, the validity of additions made by the Assessing Officer (AO), and procedural fairness in terms of natural justice.

1. ISSUES PRESENTED and CONSIDERED

The judgment addresses several key legal issues:

• Whether the initiation of proceedings under Section 153C was barred by limitation for the assessment year 2008-09.
• The validity of the assessment order for the year 2014-15, which was framed under Section 143(3) instead of Section 153C.
• Whether the additions made by the AO were based on incriminating material found during the search.
• The legality of rejecting the books of accounts under Section 145(3) without pointing out specific defects.
• Whether the assessee was denied the opportunity to cross-examine third-party statements used against them, violating principles of natural justice.
• The correctness of the AO's reliance on surmises and conjectures to make additions.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Limitation on Proceedings under Section 153C for AY 2008-09

• Legal Framework and Precedents: Section 153C allows for assessment if documents pertaining to a person other than the one searched are found. The period of six years is calculated from the date of recording satisfaction for issuing a notice under Section 153C.
• Court's Interpretation and Reasoning: The Tribunal found that the notice for AY 2008-09 was issued beyond the permissible six-year period, making the assessment time-barred.
• Conclusions: The assessment for AY 2008-09 was quashed as it was barred by limitation.

Issue 2: Validity of Assessment under Section 143(3) for AY 2014-15

• Legal Framework and Precedents: Assessments for years falling within the six-year period from the date of search should be conducted under Section 153C, not 143(3).
• Court's Interpretation and Reasoning: The assessment for AY 2014-15 should have been made under Section 153C. The Tribunal held that the assessment under Section 143(3) was a jurisdictional error.
• Conclusions: The assessment order for AY 2014-15 was quashed due to jurisdictional error.

Issue 3: Additions Based on Incriminating Material

• Legal Framework and Precedents: Additions under Section 153C must be based on incriminating material found during the search.
• Court's Interpretation and Reasoning: The Tribunal found no incriminating material justifying the additions made by the AO.
• Conclusions: Additions were deemed unsustainable in the absence of incriminating evidence.

Issue 4: Rejection of Books of Accounts under Section 145(3)

• Legal Framework and Precedents: Section 145(3) allows for the rejection of books if they are incomplete or incorrect.
• Court's Interpretation and Reasoning: The AO rejected the books without identifying specific defects, which was considered improper.
• Conclusions: The rejection of books was unjustified, and the related additions were invalid.

Issue 5: Denial of Cross-Examination

• Legal Framework and Precedents: Principles of natural justice require that the assessee be allowed to cross-examine witnesses whose statements are used against them.
• Court's Interpretation and Reasoning: The Tribunal found that the assessee was not given the opportunity to cross-examine third-party statements, violating natural justice.
• Conclusions: The use of such statements was deemed improper.

Issue 6: Reliance on Surmises and Conjectures

• Legal Framework and Precedents: Additions should be based on concrete evidence rather than assumptions.
• Court's Interpretation and Reasoning: The Tribunal criticized the AO for relying on assumptions without substantiated evidence.
• Conclusions: Additions based on conjectures were invalid.

3. SIGNIFICANT HOLDINGS

• Verbatim Quotes: "The assessment made for A.Y. 2008-09 is barred by limitation, therefore, the same is hereby quashed."
• Core Principles Established:
  • Assessments under Section 153C must be within the statutory period of six years from the date of recording satisfaction.
  • Assessments framed under the wrong section due to jurisdictional errors are void.
  • Additions require incriminating evidence; procedural fairness mandates the opportunity for cross-examination.
• Final Determinations:
  • The assessment for AY 2008-09 was quashed due to being time-barred.
  • The assessment for AY 2014-15 was quashed due to jurisdictional error.

Overall, the Tribunal's decision underscores the importance of adhering to procedural requirements and ensuring assessments are based on solid evidence and legal grounds.