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2014 (12) TMI 57 - AT - Income TaxValidity of order passed u/s 153C/143(3) Bar of limitation - Held that - The AO must be prima facie satisfied that the documents etc. belong to the other person than the person searched - such satisfaction has been stated to have been recorded and there is nothing to doubt that the action of the AO in this respect as is being made out by the appellant - while search has taken place in the group case in October 2008 but the documents are deemed to be handed over to the AO of the appellant on 05th July 2010, the date on which the notice u/s 153C has been issued - the issue of handing over, and taking over the seized material is obviated, The plea taken regarding the date of search and subsequent date of handing over of seized material is also obviated as both the sides are manned by the same AO - DSL Properties (P.) Ltd. Versus Deputy Commissioner of Income-tax, Central Circle - 8 2013 (9) TMI 123 - ITAT DELHI it has been held that even if the AO of the persons searched and the AO of the such other person other than searched is the same, then the AO has to first record the satisfaction in the file of the person searched, thereafter, such note along with the seized document/books of accounts is to be placed in the file of such other person and in absence of such exercise, initiation of proceedings u/s 153C of the Act itself are invalid. U/s 153C of the Act for transferring the material or evidence collected during course of search to the AO of assessee other than the person searched, what is required is that the money, bullion, jewellery or other valuable article or thing or books of accounts or documents seized in the course of search of an assessee belonged to or related to a person other than the person searched - unlike section 158BD of the Act for transferring a file u/s 153C of the Act, there is no need to examine whether the material, documents, books of accounts or other evidence seized during the course of search of an assessee represents or disclosed undisclosed income of another assessee. Since satisfaction was recorded on 5.7.2010 and notice u/s 153C was issued on 6.7.2010, the only conclusion that can be drawn is that the AO of such other person other than searched has taken over the possession of the seized document on 5.7.2010 - the AO has issued notice u/s 153C of the Act dated 5.7.2010 for AY 2003-04 and 2004-05 on 6.7.2010 which is clearly barred by limitation - Therefore, the issue of notice u/s 153C of the Act by the revenue cannot be sustained because it is legally not valid as the conditions laid down for valid assumption of jurisdiction u/s 153C of the Act have not been fulfilled and the same is barred by limitation for AY 2003-04 and 2004-05 thus, the notice issued u/s 153C of the Act is set aside and the assessment completed in pursuance to such notice are also quashed for AY 2003-04 and 2004-05 as the same are barred by limitation and also not initiated properly without having valid assumption of jurisdiction as required u/s 153C of the Act Decided in favour of assessee. Unexplained purchases u/s 69C Held that - The assessee produced complete books of accounts before the AO and the same were examined during the course of assessment proceedings and no defect, infirmity or ambiguity was found or pointed out by the AO - the revenue has not disputed the point that no adverse remark has been made in the sales tax assessment order with regard to the purchases mentioned by the assessee - when opening stock of the assessee in the beginning of the year and the sales also stood accepted, then there is no cause for not accepting the amount of purchases - the AO made addition on wrong premises which was rightly corrected by the CIT(A) deleting the additions Decided against revenue. Entire sales represented as income from undisclosed sources or not Held that - When a major part of the sales were made against the opening stock and the purchases made during the year, then the sales is nothing but the conversion of stock into liquidity and that too when the profit earned from this purchase and sales activities has been already offered to tax, then it cannot be inferred that the sale proceeds represent income from undisclosed sales of the assessee CIT(A) rightly deleted the additions Decided against revenue. 100% of expenditure and depreciation disallowed Held that - The CIT(A) has granted relief for the assessee by relying on the books of accounts which were duly audited and there was no negative comment in the audit report revenue has not disputed the fact that the audited books of accounts were examined by the AO and no defect or deficiency was found by the AO - lump sum disallowance of expenses is not sustainable and the CIT(A) rightly deleted the addition and directing the AO to allow the depreciation for the assessee as per provisions of the Act and Income Tax Rules 1962 Decided against revenue. Statements of various persons without confronted to the assessee have evidentiary value or not Held that - CIT(A) rightly held that Sh. Darshan Singh and Sh. D. Bhattacharya, whose statement is being relied upon do not appear to have any connection with the appellant co. which has been established by the AO the order of the CIT(A) is upheld Decided against revenue.
Issues Involved:
1. Validity of notice and assessment under Section 153C. 2. Limitation period for issuing notice under Section 153C. 3. Deletion of additions made under Section 69C. 4. Deletion of additions related to sales considered as income from undisclosed sources. 5. Deletion of disallowance of expenses and depreciation. 6. Evidentiary value of statements not confronted to the assessee. Issue-wise Detailed Analysis: 1. Validity of Notice and Assessment under Section 153C: The Tribunal noted that the documents found during the search belonged to the assessee company, leading to proceedings under Section 153C. The assessee argued that the documents did not belong to them and were part of the CA's working papers. The Tribunal observed that the satisfaction note was recorded by the same Assessing Officer for both the searched person and the assessee, which was deemed sufficient by the CIT(A). However, the Tribunal referred to various judicial precedents, including the Delhi High Court's decision in Pepsico India Holdings Pvt. Ltd. and ITAT Delhi's decision in DSL Properties (P) Ltd., emphasizing that the satisfaction must be recorded by the Assessing Officer of the person searched. The Tribunal concluded that no valid satisfaction was recorded, rendering the initiation of proceedings under Section 153C invalid. 2. Limitation Period for Issuing Notice under Section 153C: The Tribunal held that the notice issued under Section 153C for AY 2003-04 and 2004-05 was barred by limitation. The relevant date for calculating the limitation period was the date of recording satisfaction, which was 5.7.2010. Accordingly, the six preceding assessment years were 2005-06 to 2010-11. Therefore, the notices for AY 2003-04 and 2004-05 were quashed as time-barred. 3. Deletion of Additions Made under Section 69C: The CIT(A) deleted the additions made under Section 69C, noting that the purchases were duly accounted for in the books of accounts, which were not rejected by the Assessing Officer. The Tribunal upheld this finding, emphasizing that the books of accounts were examined, and no defects were pointed out. The Tribunal agreed with the CIT(A) that the provisions of Section 69C were not applicable as there was no unaccounted expenditure. 4. Deletion of Additions Related to Sales Considered as Income from Undisclosed Sources: The CIT(A) deleted the addition made by the Assessing Officer, who had considered the entire sales as income from undisclosed sources. The Tribunal upheld this decision, noting that the sales were recorded in the books of accounts, and no evidence indicated that the sale proceeds represented income from undisclosed sources. The Tribunal emphasized that the sales tax assessment also did not make any adverse remarks about the sales. 5. Deletion of Disallowance of Expenses and Depreciation: The CIT(A) deleted the disallowance of expenses and depreciation, observing that the books of accounts were duly audited, and no deficiencies were pointed out by the Assessing Officer. The Tribunal upheld this decision, agreeing that the lump sum disallowance of expenses was not justified in the absence of any defects in the audited books of accounts. 6. Evidentiary Value of Statements Not Confronted to the Assessee: The CIT(A) held that the statements of various persons, which were not confronted to the assessee, had no evidentiary value. The Tribunal agreed with this finding, emphasizing that the statements recorded on the back of the assessee could not be used against them without being confronted. Conclusion: The Tribunal allowed the sole legal ground/cross objection of the assessee in all six cases, quashing the notices under Section 153C and the consequent assessments. The Tribunal dismissed all four grounds of the revenue in the six appeals, upholding the deletions made by the CIT(A) regarding unexplained purchases, sales considered as income from undisclosed sources, disallowance of expenses, and depreciation. The Tribunal also upheld the CIT(A)'s finding that the statements not confronted to the assessee had no evidentiary value.
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