2015 (11) TMI 19 - HC - Income Tax

Addition under Section 69C - AO bringing to tax the amounts disallowed in the course of search assessment under Section 153C - Held that - In the case of a searched person the AO of the searched person assumes possession of seized assets/documents on search of the Assessee; the seized assets/documents belonging to a person other than a searched person come into possession of the AO of that person only after the AO of the searched person is satisfied that the assets/documents do not belong to the searched person. Thus, the date on which the AO of the person other than the one searched assumes the possession of the seized assets would be the relevant date for applying the provisions of Section 153A of the Act. We, therefore, accept the contention that in any view of the matter, assessment for AY 2003-04 and AY 2004-05 were outside the scope of Section 153C of the Act and the AO had no jurisdiction to make an assessment of the Assessee s income for that year. Whether the concluded assessments could be reassessed on the basis of the seized assets/documents? - Held that - In the present case, the documents seized had no relevance or bearing on the income of the Assessee for the relevant assessment years and could not possibly reflect any undisclosed income. This being the undisputed position, no investigation was necessary. Thus, the provisions of section 153C, which are to enable an investigation in respect of the seized asset, could not be resorted to; the AO had no jurisdiction to make the reassessment under Section 153C of the Act. - Decided in favour of assessee.

Summary

Issues Involved:
1. Applicability of Section 69C of the Income Tax Act, 1961.
2. Justification of the Assessing Officer (AO) in bringing to tax the amounts disallowed in the course of search assessment under Section 153C.
3. Jurisdiction of the AO to assess and reassess the income under Section 153C.
4. Validity of the initiation of proceedings under Section 153C for AY 2003-04 and 2004-05.

Detailed Analysis:

1. Applicability of Section 69C of the Income Tax Act, 1961:
The Revenue contended that the AO was justified in making additions under Section 69C of the Act, as the material indicated that no genuine sale and purchase transactions were entered into by the Assessee. However, the Tribunal upheld the CIT(A)'s view that Section 69C applies only when there is some expenditure and the Assessee is unable to explain the source of such expenditure. Since the Assessee had accounted for all purchases in its books, the source of the expenditure was not unexplained, and hence, the addition under Section 69C was not sustainable.

2. Justification of the AO in bringing to tax the amounts disallowed in the course of search assessment under Section 153C:
The AO disallowed 100% of the expenses claimed by the Assessee, concluding that they were unverifiable. The CIT(A) deleted the addition made by the AO, and the Tribunal upheld this decision. The Tribunal did not examine the challenge to the initiation of proceedings under Section 153C, terming it as 'academic'.

3. Jurisdiction of the AO to assess and reassess the income under Section 153C:
The primary issue was whether the AO had jurisdiction under Section 153C. The Court noted that the first step for initiating proceedings under Section 153C is for the AO of the searched person to be satisfied that the assets or documents seized belong to the Assessee. The AO of the searched person recorded a satisfaction note on 8th September 2010, leading to the issuance of a notice under Section 153C. However, the Court highlighted that the satisfaction note must display reasons for the conclusion that the seized documents belong to a person other than the searched person. The Court found that the satisfaction note in this case did not meet this requirement.

4. Validity of the initiation of proceedings under Section 153C for AY 2003-04 and 2004-05:
The Court held that the six assessment years for which assessments/reassessments could be made under Section 153C should be construed with reference to the date of handing over of assets/documents to the AO of the Assessee, which was 8th September 2010. Therefore, the assessments for AY 2003-04 and 2004-05 were beyond the period of six assessment years and were outside the scope of Section 153C. The Court also emphasized that concluded assessments could only be interfered with based on incriminating material unearthed during the search. Since the documents seized had no relevance or bearing on the income of the Assessee for the relevant assessment years, the AO had no jurisdiction to make the reassessment under Section 153C.

Conclusion:
The Court dismissed the appeals, holding that the initiation of proceedings under Section 153C was without jurisdiction, and the assessments for AY 2003-04 and 2004-05 were beyond the permissible period. The Court did not find it necessary to examine other questions, as the primary issue regarding jurisdiction was decided in favor of the Assessee.