2015 (11) TMI 856 - AT - Income Tax

Unexplained purchase u/s 69C - CIT(A) deleted the addition - Held that - The complete books of accounts were also produced before the AO and the same were examined and the AO has not pointed out any defect in the books of accounts produced by the assessee. Thus, the same stood accepted by the AO. The books of account maintained in the normal course of business are evidence under the Evidence Act and Income Tax Act. During the course of assessment proceeding, the assessee has furnished full details of all expenses, sales, purchases and remaining closing stock, day wise details of sales, purchases, item-wise detail of purchases and sales giving inventory and rates which purchases and sales were affected. But no defect was found by the Assessing officer either in the books of account or in the detail furnished by the assessee. After going through the reasons mentioned by the Ld. CIT(A) while deleting the addition in dispute, we are of the considered view that no interference is called for in CIT(A) s order - Decided against revenue Disallowance of 50% of expenditure - CIT(A) deleted the addition - Held that - Regarding allowance of depreciation the AO was rightly directed to allow the same as per Income Tax Act Rules. Therefore, this ground was therefore allowed in favour of the assessee company.- Decided against revenue Validity of assessment u/s. 153C - Held that - As incriminating material belonging to the assessee were found during search period, the assessment made is without jurisdiction and proceedings initiated u/s. 153C is null and void. - Decided against revenue

Issues Involved:
1. Deletion of addition made by the Assessing Officer (AO) on account of unexplained purchase under Section 69C of the Income Tax Act, 1961.
2. Deletion of addition made by the AO by way of disallowance of 50% of expenditure and depreciation claimed by the assessee.
3. Validity of notice and assessment order issued under Section 153C/143(3) of the Income Tax Act.
4. Jurisdiction and legality of proceedings initiated under Section 153C of the Income Tax Act.
5. Recording of satisfaction by the AO before issuing the notice under Section 153C.

Issue-wise Detailed Analysis:

1. Deletion of Addition on Account of Unexplained Purchase (Section 69C):
The Revenue challenged the deletion of Rs. 31,32,336/- made by the AO on account of unexplained purchase under Section 69C. The CIT(A) deleted the addition, observing that the purchases were duly accounted for in the books of accounts, which were not rejected by the AO. The CIT(A) relied on the judgment in CIT vs. Radhika Creation, where it was held that when purchases are accounted for in the regular books, the source is explained, and Section 69C does not apply. The Tribunal upheld the CIT(A)'s order, noting that the AO did not find any defects in the books of accounts and the purchases were accepted in previous assessments.

2. Deletion of Addition by Disallowance of 50% of Expenditure and Depreciation:
The Revenue contested the deletion of Rs. 2,06,645/- by the CIT(A) on account of disallowance of 50% of expenditure and depreciation claimed by the assessee. The CIT(A) noted that no material was found during the search to justify the disallowance, and the books of accounts were duly audited with no negative observations. The Tribunal upheld the CIT(A)'s order, emphasizing that the AO did not point out any deficiencies in the books of accounts, and similar expenses were allowed in previous assessments.

3. Validity of Notice and Assessment Order under Section 153C/143(3):
The assessee argued that the notice issued under Section 153C and the assessment order passed under Section 153C/143(3) were illegal, bad in law, without jurisdiction, and barred by time limitation. The Tribunal noted that no incriminating material was found during the search relating to the relevant assessment year, and the documents referred to were part of the working papers of the CA in whose office the search was conducted. The Tribunal quashed the assessment made under Section 153C, following the decision in CIT vs. Kabul Chawla, where it was held that no additions could be made if no incriminating material was unearthed during the search.

4. Jurisdiction and Legality of Proceedings under Section 153C:
The assessee contended that the proceedings under Section 153C were initiated without jurisdiction as no seized documents related to the relevant assessment year were found. The Tribunal agreed with the assessee, citing the decision in CIT vs. Kabul Chawla, and quashed the proceedings, holding that the assessment made under Section 153C was null and void.

5. Recording of Satisfaction by the AO before Issuing Notice under Section 153C:
The assessee argued that the AO did not record satisfaction before issuing the notice under Section 153C, which is a legal requirement. The Tribunal found merit in this argument, referring to the decision in Pr. CIT vs. Aakash Arogya Mandir Pvt. Ltd., where it was held that recording of satisfaction is mandatory. The Tribunal quashed the assessment on this ground as well.

Conclusion:
The Tribunal dismissed all the appeals filed by the Revenue and allowed all the cross objections filed by the assessee. The Tribunal upheld the CIT(A)'s order on the deletion of additions and quashed the assessment made under Section 153C, citing lack of jurisdiction and non-compliance with legal requirements regarding recording of satisfaction. The Tribunal's decision was based on precedents set by the Hon'ble Jurisdictional High Court.

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