2015 (3) TMI 355 - AT - Income Tax

Legality of notice issued u/s 153C - Held that - Since there was no satisfaction in the case of the searched person. The assessment framed u/s 153C of the Act in the case of the assessee was not valid. As relying on case of M/s Tanvir Collections Pvt. Ltd. Vs ACIT 2015 (3) TMI 345 - ITAT DELHI information under RTI Act was sought by the searched person and it was informed by the department that there was no satisfaction note available/recorded in respect of other entities. legal issue is decided in favour of the assessee and accordingly, it is held that the initiations of the proceedings u/s 153C of the Act are set aside on the ensuing assessment on the assessee is void ab initio. - Decided in favour of assessee.

Issues Involved:
1. Validity of the notice and assessment order issued under section 153C of the Income Tax Act, 1961.
2. Jurisdiction and procedural compliance under section 153C.
3. Principles of natural justice and opportunity of being heard.
4. Rejection of books of accounts and determination of unexplained investment/expenditure.
5. Initiation of penalty proceedings under section 271(1)(c).
6. Excessive and wrongful charging of interest under sections 234A and 234B.

Detailed Analysis:

1. Validity of the Notice and Assessment Order under Section 153C:
The assessee challenged the validity of the assessment order passed under section 153C of the Income Tax Act, 1961, arguing that the notice and subsequent assessment were illegal, bad in law, time-barred, and without jurisdiction. The facts reveal that a search operation was conducted on certain individuals and entities, during which incriminating documents belonging to the assessee were seized, leading to the initiation of proceedings under section 153C read with section 153A. The assessee filed a return declaring Nil income, but the assessment was framed at an income of Rs. 38,96,700/-.

2. Jurisdiction and Procedural Compliance under Section 153C:
The assessee contended that the Assessing Officer (AO) did not record the necessary satisfaction, which is a prerequisite for initiating proceedings under section 153C. The Tribunal noted that the AO of the searched person did not record any satisfaction that documents found belonged to the assessee. This lack of recorded satisfaction rendered the assessment proceedings void ab initio. The Tribunal cited multiple case laws and previous ITAT decisions, including the case of M/s Tanvir Collections Pvt. Ltd., where similar issues were adjudicated, and the proceedings were quashed due to the absence of recorded satisfaction.

3. Principles of Natural Justice and Opportunity of Being Heard:
The assessee argued that the assessment order was against the principles of natural justice as it was passed without affording a reasonable opportunity of being heard. The Tribunal did not specifically address this issue in detail, as the primary ground of invalid satisfaction recording was sufficient to quash the proceedings.

4. Rejection of Books of Accounts and Determination of Unexplained Investment/Expenditure:
The CIT(A) had held that despite the audited books, the book results were artificial, sham, and not reflective of actual business transactions. Consequently, the AO was directed to work out the peak from the entries in the cash book and make a singular addition as unexplained investment/expenditure. This finding was challenged by the assessee.

5. Initiation of Penalty Proceedings under Section 271(1)(c):
The assessee also contested the initiation of penalty proceedings under section 271(1)(c) for concealment of income or furnishing inaccurate particulars of income. However, due to the quashing of the assessment proceedings, this issue became redundant.

6. Excessive and Wrongful Charging of Interest under Sections 234A and 234B:
The assessee claimed that the interest charged under sections 234A and 234B was excessive and wrongly imposed. This issue was not separately adjudicated as the primary ground of invalid satisfaction recording led to the quashing of the assessment order.

Conclusion:
The Tribunal concluded that the absence of recorded satisfaction by the AO of the searched person invalidated the initiation of proceedings under section 153C. Consequently, the assessment orders for the relevant years were set aside as void ab initio. The appeals of the assessee were allowed, and the department's cross appeals were dismissed. There was no need to address other issues on merits due to the primary finding on jurisdictional grounds. The order was pronounced in the open court on 27/02/2015.

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