2016 (10) TMI 626 - HC - Income Tax

Validity of assessment u/s 153C - Held that - Two documents stated to have been recovered during the search which did not belong to the Assessee and, therefore, could not form the basis for initiating proceedings against the Assessee under Section 153 C of the Act. Even in the satisfaction note recorded by the AO, the said documents were stated to pertain to the Assessee and not belong to it. It is further pointed out by Mr. Arvind Kumar, and rightly, that the amendment to Section 153C which replaced the words belong or belongs to with the words pertain or pertains to was made only with effect from 1st June, 2015 whereas the search in the present case took place on 9th September 2010 and the notice under Section 153C was issued on 12th April, 2012.Consequently, the ITAT cannot be said to have erred in holding the assessment to be unsustainable in law. - Decided in favour of assessee

Summary

Issues:
1. Validity of assessment framed by the Assessing Officer under Section 143(3) read with Section 153C of the Income Tax Act, 1961.
2. Interpretation of documents recovered during a search and their relevance to initiating proceedings under Section 153C of the Act.

Issue 1: Validity of Assessment
The High Court dealt with the appeal filed by the Revenue against the order of the Income Tax Appellate Tribunal (ITAT) regarding the assessment framed by the Assessing Officer (AO) under Section 143(3) read with Section 153C of the Income Tax Act, 1961 for the Assessment Year 2009-10. The AO had made additions on account of bogus purchases of raw materials and notional interest on an interest-free loan. The Commissioner of Income Tax (Appeal) upheld the validity of the assessment but deleted the additions. The ITAT considered documents recovered during the search and concluded that the initiation of proceedings against the Assessee under Section 153C was invalid, citing relevant case laws. The Revenue argued that the documents recovered should be considered as belonging to the Assessee, while the Assessee contended otherwise, highlighting the change in wording in Section 153C post the search date. The High Court upheld the ITAT's decision, stating that no substantial question of law arose, and dismissed the appeal.

Issue 2: Interpretation of Recovered Documents
The crux of the matter revolved around the interpretation of documents recovered during the search conducted in the 'Amprapali group' of cases. The Assessee, a partnership firm, challenged the validity of the assessment apart from the merits of the additions made by the AO. The ITAT specifically focused on two documents that were recovered but did not belong to the Assessee. The ITAT, relying on previous judgments, held that the initiation of proceedings against the Assessee under Section 153C was legally flawed. The Revenue contended that the documents should be considered as part of the Assessee group, while the Assessee argued otherwise, emphasizing the timing of the search and the subsequent notice issued under Section 153C. The High Court concurred with the ITAT's reasoning, noting the change in wording in Section 153C post the search date and upheld the decision that the assessment was unsustainable in law. Consequently, the appeal was dismissed.

This detailed analysis of the judgment highlights the key issues addressed by the High Court regarding the validity of the assessment and the interpretation of recovered documents in the context of initiating proceedings under Section 153C of the Income Tax Act, 1961.