2016 (5) TMI 278 - AT - Income Tax

Validity of assessment u/s 153C - Held that - Assessing Officer of the searched person has failed to record his satisfaction that the seized documents belonged to the assessee i.e. other than the searched person. The recording of such a satisfaction is sine qua non for commencing any proceedings u/s 153C of the Act. Hence, no action could have been initiated against the assessee in absence of recording of satisfaction by the Assessing Officer of the searched person. Sans such satisfaction, the Assessing Officer has invalidly taken recourse to the initiation of proceedings u/s 153C of the Act. Hence, the action u/s 153C is not justified. The lack of jurisdiction by the Assessing Officer cannot be brushed aside under the guise of a technical defect. No assessment can be lawfully taken up and completed unless the concerned authority has the jurisdiction to do so. Lack of jurisdiction cannot be cured. Since the very first step prior to the issuance of notice u/s 153C of the Act has not been fulfilled and inasmuch as the condition precedent has not been met, the proceedings u/s 153C are liable to be quashed - Decided in favour of assessee

Summary

Issues Involved:
1. Validity of proceedings under Section 153C of the Income Tax Act.
2. Merits of additions made under Sections 68 and 69A of the Income Tax Act.
3. Assured return additions based on seized documents.

Detailed Analysis:

1. Validity of Proceedings under Section 153C:
The primary issue was whether the initiation of proceedings under Section 153C was valid. The assessee argued that the Assessing Officer (AO) did not record the necessary satisfaction that the seized documents belonged to the assessee, as required by Section 153C. The AO of the searched person must be satisfied that the documents belong to a person other than the searched person before handing them over to the AO of the other person. The Tribunal noted that the satisfaction note did not explicitly state that the documents belonged to the assessee, which is a mandatory requirement. The Tribunal cited the Delhi High Court's decision in Pepsi Foods Pvt. Ltd. vs. ACIT, which emphasized that the AO of the searched person must first be satisfied that the documents belong to someone else. The Tribunal concluded that the AO's failure to record such satisfaction rendered the proceedings under Section 153C invalid, leading to the quashing of the assessments for both years.

2. Merits of Additions under Sections 68 and 69A:
For Assessment Year (AY) 2009-10, the AO added ?22,55,000 under Section 68 for undisclosed investment in cash and ?8,82,000 for assured return based on seized documents. For AY 2010-11, the AO added ?4,50,00,000 under Section 69A for undisclosed investment and ?45,67,500 for assured return. The First Appellate Authority deleted the addition of ?8,82,000 for AY 2009-10 and ?4,50,00,000 and ?34,20,000 for AY 2010-11. The Tribunal did not address these additions on merits as the proceedings under Section 153C were quashed, making these grounds infructuous.

3. Assured Return Additions:
The AO made additions for assured returns based on the seized Memorandum of Understanding (MOU). The First Appellate Authority deleted these additions, and the Tribunal did not delve into the merits of these additions due to the quashing of the Section 153C proceedings.

Conclusion:
The Tribunal quashed the proceedings under Section 153C for both AY 2009-10 and AY 2010-11 due to the AO's failure to record the necessary satisfaction that the seized documents belonged to the assessee. Consequently, the Tribunal allowed the assessee's appeals and dismissed the Department's appeal for AY 2010-11 as infructuous. The Tribunal emphasized that the lack of jurisdiction due to non-compliance with statutory requirements cannot be cured and invalidates the proceedings.