2015 (9) TMI 1013 - AT - Income Tax

Validity of proceedings u/s 153C - Held that - The Assessing Officer of the person searched and such other person may be the same but these are two different assessees and, therefore, the Assessing Officer has to carry out the dual exercise, first as the Assessing Officer of the person searched in which he has to record the satisfaction, during the course of assessment proceedings of the person searched. After recording such satisfaction note in the file of the person searched, the same is to be placed in the file of such other person. Then, in his capacity as the Assessing Officer of such other person, he should take cognizance of such satisfaction note and thereafter issue notice under Section 153C. In this case, this exercise of recording the satisfaction during the assessment proceedings of the person searched has not been carried out. On the other hand, the Assessing Officer recorded the satisfaction in the case of such other person which does not satisfy the condition of assuming jurisdiction under Section 153C. Notices u/s 153C have been issued for Assessment Year 1999-2000 to 2004-2005. The only document on the basis of which the notices have been issued is an undated cheque found during the course of search at the premises of Kabhai Chauhan Group on 04.03.2005. An undated cheque found on 04.03.2005 cannot pertain to the previous years 1998-1999 to 2003- 04. It can pertain to previous year 2004-05 and thus, can be relevant only for Assessment Year 2005-06 and not in earlier years. Admittedly, there is no seized material in the years for which notices u/s 153C have been issued. the agreement between the tenant and the petitioner found from S was held to be belonging to the assessee because it was not belonging to the person searched. However, cheque issued by the assessee was in the name of Vijay K. Chauhan i.e., the person of the Group which was searched. The cheque was found from the person upon whom the cheque was drawn. Therefore, in our opinion, the cheque belongs to the person upon whom it was drawn and cannot be said to be continued to belonging to the person who issued the cheque. Therefore, in our opinion, the conditions for issue of notice u/s 153C were not satisfied. - Decided in favour of assessee.

Summary

Issues Involved:
1. Condonation of delay in filing appeals.
2. Validity of notice issued under Section 153C of the Income-tax Act.
3. Validity of assessments made under Section 153C.
4. Levy of penalty under Section 271(1)(c).

Detailed Analysis:

Condonation of Delay in Filing Appeals:
The assessee filed appeals with a delay of 21 days, citing financial constraints due to the attachment of bank accounts by the Income-tax Department, which delayed the payment of the Tribunal fee. The Tribunal condoned the delay, considering it nominal and justified by reasonable cause, thereby admitting the appeals for hearing on merit.

Validity of Notice Issued Under Section 153C:
The primary issue was the validity of notices issued under Section 153C based on an undated cheque found during a search at the premises of a third party. The Tribunal examined whether the satisfaction note required for issuing such notices was properly recorded by the Assessing Officer (AO) of the person searched. It was found that the satisfaction note was recorded by the AO of the assessee (Smt. Rekhaben Thakkar) and not by the AO of the person searched. According to Section 153C, the AO of the person searched must be satisfied that the seized documents belong to a person other than the one searched. The Tribunal concluded that this procedural requirement was not met, rendering the notices invalid.

Validity of Assessments Made Under Section 153C:
The Tribunal further analyzed the basis of the assessments made for the years 1999-2000 to 2004-2005. The undated cheque found in 2005 could not pertain to the earlier assessment years. Moreover, the cheque, once issued, belonged to the payee and not the issuer. Thus, the conditions for invoking Section 153C were not satisfied. Consequently, the Tribunal quashed the notices and the resultant assessment orders for the relevant years.

Levy of Penalty Under Section 271(1)(c):
Given that the assessment orders were quashed, the penalties levied under Section 271(1)(c) based on those assessments could not survive. The Tribunal canceled the penalties for the assessment years 1999-2000 to 2004-2005.

Conclusion:
All appeals filed by the assessee were allowed, with the Tribunal quashing the notices issued under Section 153C, the consequent assessment orders, and the penalties levied under Section 271(1)(c). The decision emphasized the necessity of proper procedural compliance in recording satisfaction for invoking Section 153C.