2013 (9) TMI 486 - AT - Income Tax

Assessment of other person pursuant to search - Jurisdiction u/s 153C - Conditions prescribed u/s 153C - Held that - condition precedent for assumption of jurisdiction u/s 153C is, the AO must be satisfied that the seized materials belongs to such other person - Undisputedly seized document on the basis of which proceeding u/s 153C is initiated against the assessee is a loose sheet - Thus a condition precedent for issuing notice under section 153C and assessing or reassessing income of such other person, is that the money, bullion, jewellery or other valuable article or thing or books of account or documents seized or requisitioned should belong to such person. If the said requirement is not satisfied, recourse cannot be had to the provisions of section 153C of the Act - it is an admitted position as emerging from the record of the case, that the documents in question, namely the three loose papers recovered during the search proceedings do not belong to the petitioner. It may be that there is a reference to the petitioner inasmuch as his name is reflected in the list under the heading Samutkarsh Members Details and certain details are given under different columns against the name of the petitioner along with other members, however, it is nobody's case that the said documents belong to the petitioner. It is not even the case of the revenue that the said three documents are in the handwriting of the petitioner - Consequentially the assessment order passed must be declared as without jurisdiction - Following decision of P. Srinivas Naik Vs. ACIT 2007 (11) TMI 443 - ITAT BANGALORE - Decided in favour of assessee.

Summary

Issues Involved:
1. Assumption of jurisdiction under Section 153C of the Income Tax Act.
2. Validity of the assessment order based on seized documents and third-party statements.

Issue-Wise Detailed Analysis:

1. Assumption of Jurisdiction under Section 153C:
The primary issue raised by the assessees was the legality of the invocation of Section 153C by the Assessing Officer (AO). The assessees argued that the AO's assumption of jurisdiction was invalid as there was no incriminating material belonging to them. The AO had issued a notice under Section 153C following a search and seizure operation conducted against third parties, during which a document was seized that allegedly indicated a higher sale consideration for a property transaction involving the assessees.

The Tribunal examined the conditions under Section 153C, which requires the AO to be satisfied that the seized materials belong to a person other than the one subjected to the search. The Tribunal noted that the seized document neither mentioned the assessees' names nor bore their signatures. The document was a loose sheet seized from a third party, and the entries were made by the third party in their handwriting. Consequently, the Tribunal concluded that the document could not be said to belong to the assessees, thus failing the precondition for initiating proceedings under Section 153C.

2. Validity of the Assessment Order Based on Seized Documents and Third-Party Statements:
The AO had relied on the seized document and statements from third parties to conclude that the sale consideration for the property was higher than declared by the assessees. The AO apportioned the differential amount as unaccounted income between the assessees. The Tribunal observed that the seized document did not directly implicate the assessees and that the AO's conclusion was based on assumptions and third-party statements.

The Tribunal referred to judicial precedents, including the Gujarat High Court's decision in Vijaybhai N. Chandrani vs. ACIT and the ITAT Bangalore Bench's decision in P. Srinivas Naik vs. ACIT, which emphasized that for Section 153C to apply, the seized documents must belong to the assessee. Since the document in question did not satisfy this criterion, the Tribunal held that the AO's assumption of jurisdiction and the subsequent assessment order were invalid.

Conclusion:
The Tribunal allowed the appeals, setting aside the orders passed by the CIT(A) and declaring the assessment orders without jurisdiction. The Tribunal's decision was based on the failure to meet the statutory requirements under Section 153C, specifically the necessity for the seized documents to belong to the assessees. The Tribunal's order was pronounced in the open court on 28/06/2013.