2017 (1) TMI 1042 - AT - Income Tax

Assessment u/s 153C - Held that - Inspite of requests by the assessee, Ld AO has not furnished copy of the satisfaction note to the assessee. The same is also evident from the reply furnished by the AO in response to the CIT(A) vide remand report No merit for the assessment framed u/s.153C / addition made without recording satisfaction by the AO of searched person and / or without finding incriminating material. Since we have already decided the legal issues in favour of the assessee, we are not going into merit of the addition so made. - Decided in favour of assessee

Summary

Issues Involved:
1. Addition on account of share capital for the assessment years 2004-05 and 2005-06.
2. Legality of the assessment framed under section 153C without recording satisfaction by the Assessing Officer (AO) of the searched person.
3. Absence of incriminating material found during the course of the search.

Issue-wise Detailed Analysis:

1. Addition on Account of Share Capital:
The AO made additions to the assessee's income on account of share capital, citing the inability of the assessee to substantiate the genuineness of the transaction and the source of funds. The CIT(A) upheld the AO's decision, leading the assessee to appeal further. The assessee argued that no incriminating material was found during the search regarding the share application money received. The documents provided by the assessee, including MOA/AOA of investing companies, share application forms, PAN details, board resolutions, confirmations, balance sheets, and copies of income tax returns, were deemed insufficient by the AO.

2. Legality of the Assessment Framed Under Section 153C:
The assessee challenged the legality of the assessment under section 153C on the grounds that the AO did not record satisfaction that the seized material belonged to the assessee. The assessee cited multiple judicial precedents, including the ITAT Special Bench decision in All Cargo Global Logistics Ltd. and the Bombay High Court decision in CIT vs. Continental Warehousing Corporation, which held that in the absence of incriminating material, no addition can be made in respect of unabated assessments. The Tribunal noted that the satisfaction note is a prerequisite for initiating action under section 153C and must be recorded by the AO of the searched person before transmitting the record to the AO of the other person.

3. Absence of Incriminating Material:
The Tribunal found that no incriminating material was discovered during the search that could justify the additions made by the AO. The assessments for the years 2004-05 and 2005-06 had attained finality as no notices under section 143(2) or section 148 were issued within the prescribed time limits. The Tribunal emphasized that the additions made without any incriminating material found during the search were not justified. The Tribunal relied on multiple judicial pronouncements, including the Bombay High Court decision in Murli Agro Products Ltd., which held that assessments under section 153A should be based on incriminating material found during the search.

Conclusion:
The Tribunal concluded that the assessments framed under section 153C without recording satisfaction and without finding any incriminating material were not justified. Consequently, the additions made on account of share capital for the assessment years 2004-05 and 2005-06 were deleted. The appeals of the assessee were allowed, and the Tribunal did not delve into the merits of the additions due to the favorable decision on the legal issues. The order was pronounced in the open court on November 9, 2016.