2025 (1) TMI 614 - AT - Income Tax

Initiation of proceedings u/s 153C - no certificate available on assessment record - HELD THAT - These are basic requirement while recording the satisfaction note that the Assessing Officer should have obtained a certificate verifying the veracity and reliability of the record. In absence of such compliance, action of the Assessing Officer to initiate action u/s 153C is not proper. As it is fact on record that there is no certificate under section 65B of the Evidence Act, 1872 which is mandatory to proceed in any proceedings. Accordingly, the relevant ground raised by the assessee is allowed in favour of the assessee

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

Whether the initiation of proceedings under section 153C of the Income-tax Act, 1961, was valid and in compliance with the mandatory requirements of sections 153A and 153C.
Whether the addition of Rs. 31,85,000/- under section 69C read with section 115BBE of the Income-tax Act was justified based on the evidence found during the search.
Whether the evidence relied upon, particularly electronic records, was admissible under the Indian Evidence Act, 1872, without a certificate under section 65B.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of Proceedings under Section 153C

Relevant Legal Framework and Precedents: Section 153C of the Income-tax Act allows proceedings against a person other than the searched person if documents or assets belonging to them are found. The satisfaction of the Assessing Officer (AO) is crucial, and it must be recorded before issuing notice under section 153C.
Court's Interpretation and Reasoning: The court noted that the satisfaction notes were undated, which raised questions about their validity. The court emphasized that satisfaction must be recorded before issuing a notice under section 153C, and the documents must pertain to the relevant assessment years.
Key Evidence and Findings: The satisfaction notes were found to be undated and vague, failing to specify the assessment years for which the incriminating material was relevant.
Application of Law to Facts: The court found that the AO did not properly correlate the seized material with specific assessment years, leading to a flawed assumption of jurisdiction under section 153C.
Treatment of Competing Arguments: The assessee argued that the satisfaction notes were invalid due to their undated nature and lack of specificity, which the court found persuasive.
Conclusions: The court concluded that the proceedings under section 153C were not validly initiated due to the flawed satisfaction notes.

Issue 2: Justification of Addition under Section 69C

Relevant Legal Framework and Precedents: Section 69C deals with unexplained expenditure, which can be added to the income of the assessee if not satisfactorily explained.
Court's Interpretation and Reasoning: The court noted discrepancies in the date of the marriage function and the amounts recorded, which cast doubt on the reliability of the evidence.
Key Evidence and Findings: The court found inconsistencies in the date of the marriage and the amounts involved, as well as a lack of cross-examination opportunities for the assessee.
Application of Law to Facts: The court determined that the evidence was insufficient to justify the addition under section 69C.
Treatment of Competing Arguments: The assessee's argument that the evidence was unreliable and that the addition was based on incorrect assumptions was accepted by the court.
Conclusions: The court held that the addition under section 69C was not justified.

Issue 3: Admissibility of Electronic Evidence

Relevant Legal Framework and Precedents: Section 65B of the Indian Evidence Act requires a certificate for the admissibility of electronic records.
Court's Interpretation and Reasoning: The court emphasized that a certificate under section 65B is mandatory for electronic evidence to be admissible.
Key Evidence and Findings: The court found that no such certificate was obtained for the electronic evidence relied upon by the AO.
Application of Law to Facts: The absence of a section 65B certificate rendered the electronic evidence inadmissible.
Treatment of Competing Arguments: The court accepted the assessee's argument regarding the inadmissibility of the electronic evidence.
Conclusions: The court concluded that the reliance on electronic evidence without a section 65B certificate was improper.

3. SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning: "The reliance of such a material requires mandatory compliance in terms of section 65B of the Evidence Act, 1872."
Core Principles Established: The necessity of a section 65B certificate for electronic evidence, and the requirement for specific and dated satisfaction notes under section 153C.
Final Determinations on Each Issue: The court held that the proceedings under section 153C were invalid, the addition under section 69C was unjustified, and the electronic evidence was inadmissible.

The appeal of the assessee was partly allowed, with the court emphasizing the importance of procedural compliance and the admissibility of evidence in tax proceedings.

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