2016 (8) TMI 49 - AT - Income Tax

Validity of assessment u/s 153C - Held that - The satisfaction recorded by the A.O. is lacking in material particulars and only the cryptic mechanical direction was issued for issuance of notice U/s 153C of the Act without recording of proper satisfaction. Ironically, in the present note, the word satisfaction has also not been used by the AO. Therefore, there is no question of even the cryptic of mechanical recording of satisfaction also. In the light of the above, we are left with no other option but to allow the appeal of the assessee.

Summary

Issues Involved:
1. Deletion of additions by CIT(A) without merit examination.
2. Non-adjudication of grounds by CIT(A) in assessee's appeals.
3. Validity of invoking Section 153C without proper satisfaction.
4. Disallowance of expenses and additional income.
5. Imposition of interest and penalties.
6. Jurisdiction and scope of assessment under Section 153A and 153C.

Detailed Analysis:

1. Deletion of Additions by CIT(A) Without Merit Examination:
The Revenue contended that the CIT(A) erred in deleting the additions by following the ratio laid down in the case of All Cargo Global Logistics 137 ITD 287 without going into the merits of the issues. The Revenue sought to set aside the CIT(A)'s order and restore the Assessing Officer's (A.O.) decision.

2. Non-Adjudication of Grounds by CIT(A) in Assessee's Appeals:
The assessee argued that the CIT(A) erred in not adjudicating the grounds related to additions made for A.Y. 2003-04 to 2008-09. The CIT(A) was accused of passing the appellate order only on technical grounds without considering the grounds on merits, which was deemed incorrect and unjustified.

3. Validity of Invoking Section 153C Without Proper Satisfaction:
The primary ground raised by the assessee was that the A.O. erred in invoking Section 153C without recording proper satisfaction, as required by law. The assessee relied on the judgment of the Hon’ble A.P. High Court in the case of CIT Vs M/s Shettys Pharmaceuticals & Biologicals Ltd., which emphasized the necessity of recording satisfaction by the A.O. before issuing notices under Section 153C.

4. Disallowance of Expenses and Additional Income:
The assessee contested the disallowance of various expenses, including raw block cutting and dressing charges, and prior period expenses, arguing that all relevant information and justifications were provided to the A.O., but were not considered. The assessee also cited the case law of Saurasthra Ball Pen (P) Ltd. Vs DCIT, which held that profit should be taken on an average basis.

5. Imposition of Interest and Penalties:
The assessee challenged the A.O.'s decision to charge interest under Sections 234A, 234B, and 234C, and the initiation of penalty proceedings under Section 271(1)(c) on the grounds of alleged income concealment. The assessee argued that no income was concealed or inaccurate particulars furnished, making the penalty proceedings unjustified.

6. Jurisdiction and Scope of Assessment Under Section 153A and 153C:
The CIT(A) discussed the jurisdiction in search cases, distinguishing between concluded assessments and pending assessments. For concluded assessments, the jurisdiction to assess is limited to incriminating material, while for pending assessments, the A.O. has unfettered jurisdiction. The CIT(A) concluded that for A.Y.s 2004-05 to 2008-09, the assessments were unabated and treated as concluded, with no specific incriminating material found during the search to justify the additions made by the A.O.

Conclusion:
The Tribunal upheld the assessee's appeal, finding that the A.O. failed to record proper satisfaction as required under Section 153C. The Tribunal noted that the satisfaction recorded was mechanical and lacked material particulars, leading to the quashing of the assessment proceedings. Consequently, the appeals of the Revenue were dismissed, and the appeals of the assessee were allowed. The Tribunal did not address the merits of the Revenue's appeals due to the decision on the satisfaction issue.