2024 (9) TMI 1274 - AT - Income Tax

Assessment u/s 153C - mandation of recording satisfaction - discovery of material which is likely to have a bearing on the determination of the total income HELD THAT - Proceedings u/s 153C can be initiated only upon recording of satisfaction by the AO of the other person on receipt of the seized material from the AO of the searched person and then AO shall proceed against such other person and issue notice and assess or reassess the income of the other person in accordance with the provisions of section 153A, if, that AO is satisfied that the books of account or documents or assets seized or requisitioned have a bearing on the determination of the total income of such other person for six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition is made. We observe that the satisfaction note recorded by the AO of the assessee, he has not recorded how the documents seized have a bearing on the determination of the total income of the assessee for six assessment years immediately preceding the assessment year. It clearly shows that the satisfaction note recorded are not as per the provisions of section 153C. As relying on Saksham Commodities Ltd 2024 (4) TMI 461 - DELHI HIGH COURT we observe from the satisfaction recorded in this case, the AO failed to record the satisfaction as per the provisions of the Act and failed to record the assessment of the potential impact on the income not declared by the assessee earlier and the impact that may have on the total income for the six AYs immediately preceding the AY, in this case AY 2021-22. Therefore, non recording of proper satisfaction to initiate the proceedings u/s 153C of the Act, the proceeding initiated in the present case is without proper jurisdiction. Accordingly, the ground raised by the assessee is allowed.

Issues Involved:
1. Assumption of jurisdiction under Section 153C of the Income Tax Act.
2. Validity of additions made under Section 69C of the Income Tax Act.
3. Evidentiary value of seized documents and statements.
4. Procedural lapses and adherence to principles of natural justice.

Issue-wise Detailed Analysis:

1. Assumption of jurisdiction under Section 153C of the Income Tax Act:
The Tribunal examined whether the Assessing Officer (AO) had correctly assumed jurisdiction under Section 153C. The Tribunal noted that the AO must be satisfied that the seized documents have a bearing on the determination of the total income of the assessee for six assessment years immediately preceding the assessment year relevant to the previous year in which the search is conducted. The Tribunal found that the AO did not record how the documents seized have a bearing on the determination of the total income of the assessee. The Tribunal cited the case of *Saksham Commodities Ltd.*, emphasizing that the satisfaction note must indicate the potential impact on the total income. Consequently, the Tribunal held that the proceedings initiated under Section 153C were without proper jurisdiction and quashed the assessments for AY 2014-15 to 2019-20.

2. Validity of additions made under Section 69C of the Income Tax Act:
The Tribunal scrutinized the additions made under Section 69C, which pertains to unexplained expenditure. The provision focuses on the source of expenditure, and the burden is on the revenue to establish that the assessee incurred the expenditure. The Tribunal noted that the AO failed to provide documentary evidence to support the claim that the assessee made cash purchases from M/s Pragati Glass Pvt. Ltd. (PGPL). The Tribunal cited several judgments, including *CIT vs. Smt. P. K. Noorjahan* and *CIT vs. Shivakami Co. (P) Ltd.*, to emphasize that the burden of proof lies with the revenue. In the absence of corroborative evidence, the Tribunal held that the additions under Section 69C were not justified.

3. Evidentiary value of seized documents and statements:
The Tribunal evaluated the evidentiary value of the seized documents and statements. It was noted that the primary document relied upon by the AO was an unsigned, undated, and unverified loose paper, which was deemed a "dumb document" and could not be relied upon to make additions under Section 69C. The Tribunal referred to the Supreme Court's judgment in *Common Cause (A Registered Society) vs. UOI* and other relevant cases, which held that loose sheets of paper are not admissible as evidence under Section 34 of the Evidence Act. The Tribunal also emphasized that third-party documents without corroborative evidence have no evidentiary value.

4. Procedural lapses and adherence to principles of natural justice:
The Tribunal observed that the AO relied on statements recorded during the search and survey proceedings without providing an opportunity for cross-examination to the assessee. The Tribunal cited the Supreme Court's judgment in *Andaman Timber Industries vs. CCE*, which held that not allowing cross-examination of witnesses whose statements are relied upon violates the principles of natural justice. The Tribunal also referred to the case of *CIT vs. Odeon Builders (P) Ltd.*, where it was held that statements recorded under Section 131 have no evidentiary value if not subjected to further scrutiny. The Tribunal concluded that the AO's actions were procedurally flawed and violated the principles of natural justice.

Conclusion:
The Tribunal quashed the assessments for AY 2014-15 to 2019-20, holding that the proceedings initiated under Section 153C were without proper jurisdiction due to the lack of proper satisfaction notes. The additions made under Section 69C were also held to be unjustified due to the absence of corroborative evidence and reliance on inadmissible documents. The Tribunal emphasized the importance of adhering to procedural requirements and principles of natural justice in assessment proceedings. The appeals filed by the assessee were allowed.

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