2016 (6) TMI 30 - AT - Income Tax

Validity of the assessment framed u/s 153C - Held that - The first and foremost step for initiation of proceedings u/s 153C i.e., the recording of the satisfaction by the Assessing Officer of the person searched is missing, the proceedings. Thus the initiation of the proceedings u/s 153C in the assessee s case are held to be invalid and accordingly the assessment framed, thereafter u/s 153C of the Act is quashed. - Decided in favour of assessee

Issues Involved:
1. Validity of the notice issued under Section 153C and the assessment order passed under Section 153C/143(3).
2. Justification of the assessment proceedings under Section 153C.
3. Compliance with statutory provisions under Section 153C.
4. Restriction of assessment to incriminating seized documents.
5. Admission of additional evidence by the CIT(A).
6. Rejection of book results and calculation of unexplained investment/expenditure.
7. Sustenance of addition as unexplained investment/expenditure.
8. Consideration of explanations, evidence, and material on record.
9. Observations and findings of the CIT(A) and AO.

Detailed Analysis:

1. Validity of Notice and Assessment Order under Section 153C:
The assessee challenged the validity of the notice issued under Section 153C and the assessment order passed under Section 153C/143(3) on the grounds that they were illegal, time-barred, without jurisdiction, and against the principles of natural justice. The Tribunal noted that the search and seizure action under Section 132 was conducted at the premises of certain individuals and entities, and documents belonging to the assessee were seized. The Tribunal referred to the decision of the Hon’ble Jurisdictional High Court in CIT Vs RRJ Securities Ltd. and the ITAT Delhi Bench in ACIT Vs Shield Home Pvt. Ltd., which emphasized the necessity of recording satisfaction by the AO of the searched person before initiating proceedings under Section 153C. Since no such satisfaction was recorded, the Tribunal held the initiation of proceedings under Section 153C to be invalid and quashed the assessment order.

2. Justification of Assessment Proceedings under Section 153C:
The assessee contended that the assessment proceedings for the year under appeal were not pending on the date of recording satisfaction under Section 153C, and thus, the proceedings under Section 153C were unjustified. The Tribunal, following the precedent set in similar cases, concluded that the absence of recorded satisfaction by the AO of the searched person rendered the proceedings under Section 153C invalid.

3. Compliance with Statutory Provisions under Section 153C:
The assessee argued that the assessment was framed without complying with the procedures prescribed under Section 153C. The Tribunal reiterated that the first step for initiating proceedings under Section 153C is the satisfaction of the AO of the searched person, which was not recorded in this case. Hence, the assessment was deemed non-compliant with statutory provisions and was quashed.

4. Restriction of Assessment to Incriminating Seized Documents:
The assessee claimed that the assessment under Section 153C should be restricted to incriminating seized documents relevant to the year under consideration. In the absence of such documents, the assessment was argued to be invalid. The Tribunal did not address this issue separately as the primary legal issue regarding the validity of the proceedings under Section 153C was decided in favor of the assessee.

5. Admission of Additional Evidence by the CIT(A):
The assessee contended that the CIT(A) erred in not admitting additional evidence and not considering the remand report of the AO. The Tribunal did not provide a separate finding on this issue due to the quashing of the assessment order based on the invalidity of the proceedings under Section 153C.

6. Rejection of Book Results and Calculation of Unexplained Investment/Expenditure:
The assessee argued that the CIT(A) erred in rejecting the book results while still relying on them for calculating the peak of financial transactions. The Tribunal did not delve into this issue separately as the primary legal issue was resolved in favor of the assessee.

7. Sustenance of Addition as Unexplained Investment/Expenditure:
The assessee challenged the sustenance of the addition of ?23,72,454 as unexplained investment/expenditure. The Tribunal, having quashed the assessment order, did not need to address the merits of this addition separately.

8. Consideration of Explanations, Evidence, and Material on Record:
The assessee claimed that the CIT(A) ignored explanations, evidence, and material on record. The Tribunal did not provide a separate finding on this issue due to the quashing of the assessment order.

9. Observations and Findings of the CIT(A) and AO:
The assessee argued that the observations and findings of the CIT(A) and AO were irrelevant and vitiated in law. The Tribunal did not address this issue separately as the primary legal issue regarding the validity of the proceedings under Section 153C was decided in favor of the assessee.

Conclusion:
The Tribunal quashed the assessment orders for the assessment years 2003-04 to 2008-09 on the grounds that the initiation of proceedings under Section 153C was invalid due to the absence of recorded satisfaction by the AO of the searched person. Consequently, the appeals of the assessee were allowed, and the cross-appeal of the department was dismissed.

← Previous Next →