2024 (11) TMI 1304 - AT - Income Tax

Validly assumed jurisdiction u/s 153C - deficiencies are evident from satisfaction note - Bogus LTCG - HELD THAT - First of all there was no search conducted in the hands of the assessee. Hence factually incorrect statement was made in the satisfaction note. The satisfaction note does not make any reference to any seized material found in the hands of Dev Priya Group of cases. On what basis, the investigation team or the Assessing Officer of Dev Priya Group had come to a conclusion that the exempt long term capital gain (LTCG) derived by the assessee on sale of shares of CCL International Ltd is bogus is not brought out. Neither the seized material, if any, to support the said allegation is brought on record by the ld AO nor the findings of the investigation team to prove categorically that the exempt LTCG declared by the assessee is bogus. Satisfaction note clearly states the intention of the ld AO that he intends only to examine the exempt LTCG of the assessee on sale of shares of CCL International Ltd. Hence there was no conclusion drawn by the ld AO that the assessee s claim of exemption of LTCG is bogus as such or such conclusion is drawn from any seized material or investigation findings. It is trite law that no assessment proceedings u/s 153C of the Act could be initiated on a person merely to examine a particular aspect. This examination should be done prior to initiation of proceedings u/s 153C of the Act only then satisfaction could be drawn by the assessee that exempt LTCG shown by the assessee is only out of conversion of his unaccounted income. If this is not done, then the element of satisfaction of the ld AO to initiate proceedings u/s 153C of the Act preceded by formation of his opinion vanishes in thin air. The entire satisfaction note does not even state that whether the findings of investigation , if any, or the seized documents, if any, on the aspect of exempt LTCG has any bearing on determination of total income of the assessee before us. We hold that the entire assumption of jurisdiction u/s 153C of the Act in the instant case is void- ab-initio and hence quashed. Assessee appeal allowed.

Summary

Issues Involved:

1. Validity of jurisdiction assumed under Section 153C of the Income Tax Act.
2. Examination of deficiencies in the satisfaction note issued by the Assessing Officer.
3. Application of legal precedents regarding Section 153C proceedings.

Detailed Analysis:

1. Validity of jurisdiction assumed under Section 153C of the Income Tax Act:

The primary issue in this appeal was whether the Assessing Officer (AO) validly assumed jurisdiction under Section 153C of the Income Tax Act. The case involved an assessee who was part of a Hindu Undivided Family and had not been directly subjected to a search under Section 132 of the Act. The AO issued a notice under Section 153C after a search in the Dev Priya Group, alleging that the assessee had received accommodation entries disguised as Long Term Capital Gains (LTCG). The tribunal found that the jurisdiction assumed under Section 153C was invalid due to several deficiencies in the satisfaction note, which failed to establish a direct link between the seized material and the assessee's income.

2. Examination of deficiencies in the satisfaction note issued by the Assessing Officer:

The tribunal identified several deficiencies in the satisfaction note that questioned the validity of the proceedings under Section 153C. Firstly, the note incorrectly stated that a search was conducted on the assessee, which was factually incorrect. Secondly, the note lacked reference to any specific seized material from the Dev Priya Group that could substantiate the claim of bogus LTCG. The tribunal emphasized that the AO's intention to merely examine the LTCG without drawing a conclusion from any seized material or investigation findings was insufficient to initiate proceedings under Section 153C. The tribunal reiterated that satisfaction for initiating such proceedings must be based on concrete evidence indicating that the exempt LTCG was derived from unaccounted income.

3. Application of legal precedents regarding Section 153C proceedings:

The tribunal referred to a precedent set by the Hon'ble Jurisdictional High Court in a similar case, which outlined the principles for invoking Section 153C. The High Court had emphasized that the satisfaction note must clearly establish that the material found during the search has a bearing on the determination of the total income of the assessee for the relevant assessment years. The tribunal highlighted that the jurisdictional AO must be satisfied that the material impacts the total income before issuing a notice under Section 153C. The tribunal found that the deficiencies in the satisfaction note in the present case rendered the assumption of jurisdiction void ab initio, as it did not meet the criteria established by the precedent.

In conclusion, the tribunal quashed the proceedings under Section 153C due to the invalid assumption of jurisdiction and the lack of a valid satisfaction note. Consequently, the appeal of the assessee was allowed, and other arguments on merits were deemed academic and unnecessary to address.