2025 (1) TMI 378 - AT - Income Tax

Validity of assessment made u/s 153C being barred by limitation - AR submitted that the assessment year 2009 10 to 2012 13 would be beyond the block of 10 assessment years as per first proviso to section 153C and Explanation-1 to section 153A and assessment made u/s 153C dated 31/03/2022 for the assessment year 2009 10 would be time barred, is liable to be quashed - HELD THAT - We find that the assessment year 2009-10, 2010-11 and 2011-12 is beyond the block of 10 year as per first proviso to section 153C read with Explanation-1 to section 153A and, therefore, notice issued under section 153C and assessment made under section 153C by the Assessing Officer for the assessment year 2009-10, 2010-11 and 2011-12 is barred by limitation and is invalid, bad in law and is hereby quashed for the want of valid assumption of jurisdiction on the part of the Assessing Officer. Validity of Satisfaction Note recorded by the AO of the searched person - We find that it is an admitted position that the consolidated satisfaction note was recorded by the Assessing Officer of the searched person before transmitting the documents/ information to the AO of the non-searched person i.e., the assessee in this case for the assessment year 2009 10 to 2019 20 i.e., for 11 years and thereafter the documents have been transferred on 21/01/2021 to the AO of the non searched persons i.e., the assessee company and subsequently the AO of the assessee company has further recorded consolidated satisfaction note for the assessment year 2009 10 and 2010 11 and thereafter the AO further recorded another consolidated satisfaction note for the assessment year 2011 12 to 2013 14, which is clear from the above discussions. We rely on the judgment of Sunil Kumar Sharma 2024 (2) TMI 116 - KARNATAKA HIGH COURT wherein it has been held that satisfaction note is required to be recorded u/s 153C for each assessment year and in the impugned proceedings, a consolidated satisfaction note has been recorded for different assessment year by both the AO i.e., the Assessing Officer of the searched person has recorded consolidated satisfaction note for the assessment year 2009 10 to 2019 20 and thereafter the Assessing Officer of the assessee has recorded consolidated satisfaction note for the assessment year 2009 10 and 2010 11 and another consolidated satisfaction note for the assessment year 2011 12 to 2013 14. There is no co relation with the documents year wise to clearly point out as to how the documents pertain to the assessee. Additions on account of unexplained cash credit and that too share capital / unsecured loans advances - In our opinion, as the very usurpation of jurisdiction under section 153C is found to be bad in law for want of jurisdiction, the Assessing Officer was precluded from making any other addition in the assessments made for the assessment year 2009-10 to 2013-14. Hence, the action of the Assessing Officer in making addition under section 68 in the relevant assessment year 2009-10 to 2013-14 is held to be unsustainable for want of jurisdiction and is, therefore, it is invalied and bad- in law. Therefore, in view of the aforesaid discussions, we hold that the Assessing Officer s action of making addition under section 68 of the Act for the relevant assessment year 2009-10 to 2013-14 is untenable in the eyes of law and it is hereby quashed. Validity of approval granted u/s 153D by the Addl. CIT, Central Range 1, Nagpur, for making assessment under section 153C of the Act for the assessment year 2009 10 to 2013 14 - From perusal of the approval granted u/s 153D it emerges that it is granted on the same day itself on 31/03/2022 on the basis of letter dated 31/03/2022 by the Assessing Officer for seeking approval, though it is separate approval for each year but it is stereo-type approval, in mechanical routine manner, though it is recorded that he has perused the draft assessment order but he has not pointed out the mistake / error committed by the Assessing Officer in the alleged draft order. Addl.CIT did not mention anything in the approval order passed under section 153D dt.31/03/2022, even though for each year separately, towards his process of deriving satisfaction so as to exhibit his due application of mind. The Addl.CIT has failed to satisfactorily record its concurrence. Even the approval granted by the Addl.CIT does not refer to any seized material/assessment records/ satisfaction note or any other documents which could suggest that the Addl.CIT has duly applied his mind before granting approvals. There is no recording of satisfaction by the Addl.CIT in the impugned approval order as to whether the assessment records/ assessment folders/ files/ seized materials or any incriminating documents or other connected documents and papers/ various statements recorded under section 132(4) and section 131(1A) of the assessee or any other person/ appraisal report of the Investigation Wing of the Department/ materials on hand with the Department at the time of initiation of search or material evidences gathered were placed for its verification and the same were duly verified and/or examined by him as mandated under section 153D. In the absence of compliance of the above mandate, the approval order dated 31/03/2022, passed under section 153D becomes an empty formality without due process of law and, thus, not sustainable. This is nothing but an approval by way of mere mechanical exercise accepting the draft assessment order without any independent application of mind by the Addl.CIT. Thus approval given by the Addl.CIT, in our opinion, is invalid in the eyes of law and, therefore, hold that approval gvien under section 153D was granted in a mechanical manner and without application of mind and hence, it is treated as invalid and bad in law. Addition u/s 68 - The said sum is not found credited in the books of account of the assessee-Company in the assessment year 2009 10, which is sine qua non/ pre-requisite/ pre-condition for making addition under section 68 on account of unexplained cash credits and in absence of this pre-condition of recording of credit entry in the books of account which is mandatory for applying section 68, the addition is unjustified. Thus, we conclude that addition of ₹ 60 lakh made in the assessment year 2009-10 is merely on presumption, surmises and conjectures without bringing any material/ evidence on record by the Revenue for substantiating its contention that it is an undisclosed income in the hands of the assessee-Company for the assessment year 2009-10. Addition on account of unexplained cash credit u/s 68 involved in the assessment year 2013 14 in respect of the amount of ₹ 50 lakh received as share application money from M/s.Suraksha Projects Ltd. in the assessment year 2013-14, which was recorded in the books of account and has been declared income shown in IDS, 2016 (supra) and due taxes has been paid by the assessee. Further, for ₹ 40 lakh received as share application money from Shridhan Jewellery P. Ltd. in the assessment year 2013 14, which was recorded in the books of account and has been declared income shown in IDS, 2016 (supra) and due taxes has been paid by the assessee-Company; on 11/10/2016 as per the surrender made in survey under section 133A dated 26/09/2016 on account of share capital / share application money by the assessee and hence, further making addition of ₹ 1,25,00,000 by the Assessing Officer in assessment made u/s 153C on 31/03/2022 would tantamount to be double addition on the same amount which had already been offered for taxation by the assessee, which we hold to be unsustainable in the eyes of law, and hence, the addition of ₹ 1,25,00,000 lakh is liable to be deleted.

Summary

1. ISSUES PRESENTED and CONSIDERED

The judgment primarily addresses the following legal issues:

• Whether the assessments made under section 153C of the Income Tax Act, 1961, for the assessment years 2009-10 to 2013-14, are barred by limitation.
• Whether the satisfaction note required under section 153C was properly recorded for each assessment year.
• Whether the approval granted under section 153D for making assessments under section 153C was valid and done with due application of mind.
• Whether the additions made under section 68 of the Act on account of unexplained cash credits were justified.
• Whether the assessments for the unabated years could be reopened without incriminating material found during the search.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Barred by Limitation

• Relevant legal framework and precedents: The assessment under section 153C should be within the block period as defined by the Finance Act, 2017, which amended the provisions to extend the block period to 10 assessment years.
• Court's interpretation and reasoning: The court observed that the assessments for the years 2009-10 to 2011-12 were beyond the 10-year block period as the deemed date of search was 21/01/2021.
• Key evidence and findings: The documents were transferred to the Assessing Officer on 21/01/2021, making it the deemed date of search.
• Application of law to facts: The court applied the amended provisions and concluded that the assessments for the years 2009-10 to 2011-12 were time-barred.
• Treatment of competing arguments: The court rejected the Revenue's argument that the assessments were within the permissible period.
• Conclusions: The assessments for 2009-10 to 2011-12 were quashed as time-barred.

Issue 2: Satisfaction Note

• Relevant legal framework and precedents: Section 153C requires a satisfaction note to be recorded by the Assessing Officer of the searched person before transferring documents to the Assessing Officer of the other person.
• Court's interpretation and reasoning: The court noted that a consolidated satisfaction note was recorded for multiple years, which is not compliant with the requirement for separate satisfaction notes for each year.
• Key evidence and findings: The satisfaction note was recorded for 11 years in a consolidated manner.
• Application of law to facts: The court found the satisfaction note inadequate and not in compliance with legal requirements.
• Treatment of competing arguments: The court agreed with the assessee's argument that separate satisfaction notes were required.
• Conclusions: The assessments were invalid due to improper satisfaction notes.

Issue 3: Approval under Section 153D

• Relevant legal framework and precedents: Section 153D requires prior approval of the draft assessment order by a higher authority, which must be done with due application of mind.
• Court's interpretation and reasoning: The court found that the approval was granted mechanically without proper examination of the assessment records or application of mind.
• Key evidence and findings: The approval was granted on the same day as the request, indicating a lack of due diligence.
• Application of law to facts: The court held that the approval process was not compliant with the statutory requirement of due application of mind.
• Treatment of competing arguments: The court rejected the Revenue's defense of the approval process.
• Conclusions: The assessments were quashed due to invalid approval under section 153D.

Issue 4: Additions under Section 68

• Relevant legal framework and precedents: Section 68 deals with unexplained cash credits, requiring such credits to be recorded in the books of accounts for the relevant year.
• Court's interpretation and reasoning: The court found that the credits were not recorded in the books for the relevant years, making the additions unjustified.
• Key evidence and findings: The credits were not found in the books for the years under consideration.
• Application of law to facts: The court applied section 68 and found the additions invalid due to lack of recorded credits.
• Treatment of competing arguments: The court accepted the assessee's argument and rejected the Revenue's position.
• Conclusions: The additions under section 68 were deleted.

Issue 5: Unabated Years and Incriminating Material

• Relevant legal framework and precedents: For unabated years, additions can only be made based on incriminating material found during the search.
• Court's interpretation and reasoning: The court observed that no incriminating material was found for the unabated years.
• Key evidence and findings: The absence of incriminating material for the relevant years was noted.
• Application of law to facts: The court held that the additions for unabated years were unjustified without incriminating material.
• Treatment of competing arguments: The court sided with the assessee's argument against the additions.
• Conclusions: The additions for unabated years were invalid.

3. SIGNIFICANT HOLDINGS

• The assessments for the years 2009-10 to 2011-12 were quashed as time-barred.
• The satisfaction note requirement under section 153C was not met, rendering the assessments invalid.
• The approval under section 153D was found to be mechanical and without due application of mind, leading to the quashing of assessments.
• Additions under section 68 were deleted as the credits were not recorded in the books for the relevant years.
• Additions for unabated years were invalid due to the absence of incriminating material.