2024 (6) TMI 1221 - AT - Income Tax

Validity of the notice u/s 153C - addition of undisclosed income - sum received by the assessee LLP are through shareholder/paper companies which have no substantial business and has been used as a conduit for bringing unaccounted money in the books in the form of capital investment - HELD THAT - As no valid satisfaction note was recorded, the ld. Assessing Officer erred in assuming jurisdiction u/s 153C of the Act to make the assessment. Thus, we fail to find any infirmity in the finding of the ld. CIT(A) quashing the impugned assessment order holding them to be invalid, void ab initio and bad in law for want of proper satisfaction note. Since no incriminating material found during the course of search has been referred by the ld. Assessing Officer for making the impugned addition, which falls under the category of completed and unabated Assessment Year, no addition can be made in the hands of the assessee. See ABHISAR BUILDWELL P. LTD. 2023 (4) TMI 1056 - SUPREME COURT Addition made by the ld. AO is on account of investment made in two LLPs (of which one is the assessee) by its partner M/s. Dayanidhi Commercial Ltd., in the preceding financial year. We also note th the ld. Assessing Officer on the one hand, himself states that assessee company received capital contribution of Rs. 3.72 Crores in the preceding year but went on to make addition of Rs. 10.72 Crores for the year under appeal which includes Rs. 7 Crores received by another LLP, namely, M/s. Suntok Plantations LLP, from its partner in preceding financial year. It clearly indicates that the impugned additions has been made without making any reference to the incriminating material found during the course of search. Decided in favour of assessee.

Issues Involved:

1. Validity of the notice under Section 153C of the Income Tax Act.
2. Deletion of addition made on unexplained capital investment.
3. Absence of incriminating documents for addition under Section 153A/153C.
4. Absence of Document Identification Number (DIN) in the assessment order.
5. Validity of satisfaction recorded for jurisdiction under Section 153C.
6. Validity of approval under Section 153D.

Issue-wise Detailed Analysis:

1. Validity of the notice under Section 153C of the Income Tax Act:
The revenue questioned whether the CIT(A) was justified in annulling the notice under Section 153C due to the general nature of the satisfaction note and the absence of a separate satisfaction recorded by the AO of the person searched. The Tribunal upheld the CIT(A)'s decision, noting that the satisfaction note lacked specific details, such as the date of search, nature of documents seized, and relevant assessment years. The Tribunal emphasized the necessity of a proper satisfaction note as per the Supreme Court's ruling in CIT vs. Calcutta Knitwears and the CBDT Circular No. 24/2015. The Tribunal concluded that the jurisdiction assumed under Section 153C was invalid, void ab initio, and bad in law due to the lack of a proper satisfaction note.

2. Deletion of addition made on unexplained capital investment:
The CIT(A) deleted the addition of Rs. 10.64 Crores made by the AO under Section 68, which was based on the capital contribution by M/s. Dayanidhi Commercial Ltd. The Tribunal observed that the addition was made for the capital contribution received in the preceding financial year (FY 2014-15) and not during the assessment year in question (2016-17). The Tribunal upheld the CIT(A)'s decision, noting that the addition was made without any reference to incriminating material found during the search, and thus, the addition was unjustified.

3. Absence of incriminating documents for addition under Section 153A/153C:
The Tribunal referred to the Supreme Court's judgment in Pr. C.I.T. V/s. Abhisar Buildwell (P) Ltd., which held that no addition can be made in respect of completed/unabated assessments in the absence of incriminating material found during the search. The Tribunal noted that the assessment year in question was a completed and unabated year, and no incriminating material was referred to by the AO. Therefore, the addition made by the AO was invalid.

4. Absence of Document Identification Number (DIN) in the assessment order:
The assessee raised an issue regarding the absence of a computer-generated Document Identification Number (DIN) in the assessment order. However, during the hearing, the assessee's counsel did not press this ground in light of the Supreme Court's interim stay in CIT vs. Brandix Mauritius Holdings Ltd. Consequently, this ground was dismissed as not pressed.

5. Validity of satisfaction recorded for jurisdiction under Section 153C:
The Tribunal emphasized the importance of a proper satisfaction note for assuming jurisdiction under Section 153C. The satisfaction note in this case was found to be inadequate, lacking specific details and failing to meet the requirements outlined by the Supreme Court and the CBDT Circular. The Tribunal upheld the CIT(A)'s finding that the jurisdiction assumed under Section 153C was invalid.

6. Validity of approval under Section 153D:
The assessee challenged the validity of the assessment order due to the alleged absence of valid approval under Section 153D. However, the Tribunal noted that the assessee did not provide any details or evidence in support of this ground. Consequently, this ground was dismissed.

Conclusion:
The Tribunal dismissed the revenue's appeal and partly allowed the assessee's cross-objection. The Tribunal upheld the CIT(A)'s decision to quash the assessment order under Section 153C due to the lack of a proper satisfaction note and the absence of incriminating material for the addition made. The Tribunal also dismissed the ground related to the absence of DIN as not pressed and the ground related to the validity of approval under Section 153D due to lack of supporting evidence. The Tribunal's order was pronounced on 26th June 2024.

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