2024 (6) TMI 515 - AT - Income Tax

Validity of proceedings u/s 153C - satisfaction note recorded by the AO of the searched person or not? - HELD THAT - AO specifically mentions that the additions made to the income of the assessee was not specifically based on any incriminating material and the same did not sustain. The AO has also proposed to initiate proceedings u/s 148 after duly following the procedure prescribed u/s 148A of the Act as inserted by Finance Act, 2021. Since, the Revenue itself has embarked upon the process of initiation of proceedings u/s 148 after accepting that the assessment made u/s 153C of the Act was not based on any incriminating material, the appeals of the assessee assailing the additions made u/s 153C are liable to be allowed. Appeal of assessee allowed.

Summary

Issues Involved:
1. Jurisdiction u/s 153C of the Income Tax Act.
2. Validity of additions made based on non-incriminating material.
3. Residential status of the assessee company.
4. Reassessment proceedings u/s 148A.

Summary:

1. Jurisdiction u/s 153C of the Income Tax Act:
The assessee challenged the jurisdiction assumed by the AO u/s 153C, arguing that no incriminating material was found during the search on Mr. K. S. Dhingra and Mr. G. S. Dhingra on 16.09.2011. The Tribunal noted that the AO's jurisdiction was based on documents that were not incriminating in nature, such as books of accounts prepared on outsourcing basis.

2. Validity of Additions Made Based on Non-Incriminating Material:
The Tribunal observed that the additions made by the AO were not based on any incriminating material found during the search. The AO had relied on statements recorded during the survey and documents that did not reveal any undisclosed income. The Tribunal highlighted that the Supreme Court had upheld the High Court's decision to set aside the assessment orders as no incriminating material was found.

3. Residential Status of the Assessee Company:
The Tribunal examined the issue of the residential status of the assessee company, which was treated as a resident in India by the AO based on the control and management of its affairs being situated wholly in India. The Tribunal noted that the AO had relied on various documents and statements indicating that the company's books of accounts were maintained in India and strategic decisions were taken by Mr. K. S. Dhingra in India. However, the Tribunal found that these findings were not supported by incriminating material.

4. Reassessment Proceedings u/s 148A:
The Tribunal noted that the Revenue had initiated reassessment proceedings u/s 148A following the Supreme Court's order, which allowed for such proceedings if permissible under the law. The AO had acknowledged that the earlier assessment u/s 153C was not based on incriminating material and proposed to follow the procedure prescribed u/s 148A.

Conclusion:
The Tribunal allowed the appeals of the assessee, concluding that the additions made u/s 153C were not based on any incriminating material. The Tribunal emphasized that the Revenue had accepted this position and had initiated reassessment proceedings u/s 148A. The order was pronounced in the Open Court on 19/01/2024.