2017 (6) TMI 169 - AT - Income Tax

Assumption of jurisdiction u/s.153C - non incriminating material found during the search and seizure Held that - AO has completed the assessment and made the addition in dispute without any incriminating material found during the search and seizure operation and the addition in this case was purely based on the material already available on record which is not sustainable in the eyes of law. See M/s GLOBAL REALTY CREATIONS LTD. (FORMERLY KNOWN AS M/s HIGHLAND DEVELOPERS PVT. LTD.) Versus DCIT CENTRAL CIRCLE-12 ARA CENTRE JHANDEWALAN EXTN. NEW DELHI 2017 (4) TMI 470 - ITAT DELHI - Decided in favour of assessee.

Summary

Issues Involved:
1. Legality of the reassessment under Section 153C.
2. Legality of the addition of unexplained cash credit under Section 68.
3. Consideration of additional evidence filed by the assessee.
4. Procedural and substantive requirements under Section 153C.
5. Scope of assessment under Section 153C/153A.

Detailed Analysis:

1. Legality of the Reassessment under Section 153C:
The primary issue was whether the assessment under Section 153C was valid. The Tribunal noted that the Assessing Officer (AO) initiated proceedings under Section 153C based on documents seized during a search operation. However, it was argued that the AO did not properly record satisfaction that the seized documents belonged to the assessee, which is a prerequisite for invoking Section 153C. The Tribunal referenced several judicial precedents, including the Delhi High Court's decisions in Pepsi Foods Pvt. Ltd. and PepsiCo India Holdings Pvt. Ltd., which clarified that the AO must record a clear satisfaction that the seized documents belong to a person other than the searched person. The Tribunal found that the AO's satisfaction note was inadequate and did not meet the legal requirements, rendering the reassessment under Section 153C invalid.

2. Legality of the Addition of Unexplained Cash Credit under Section 68:
The Tribunal examined the addition of ?97,10,000 (AY 2003-04) and ?89,50,000 (AY 2004-05) as unexplained cash credits under Section 68. The AO had made these additions based on the assessee's failure to provide details and evidence regarding the share capital and share premium received. However, the Tribunal noted that these additions were not based on any incriminating material found during the search. Citing the Delhi High Court's decision in Kabul Chawla, the Tribunal held that in the absence of any incriminating material, no additions could be made to the income already assessed. Therefore, the additions under Section 68 were deleted.

3. Consideration of Additional Evidence Filed by the Assessee:
The assessee contended that the CIT(A) erred by not considering the additional evidence filed. The Tribunal did not specifically address this issue in detail as the primary grounds for quashing the assessment were procedural and substantive deficiencies under Section 153C. However, the Tribunal's decision to delete the additions implicitly addressed the issue, indicating that the additional evidence, if considered, would not have changed the outcome.

4. Procedural and Substantive Requirements under Section 153C:
The Tribunal emphasized the necessity of following procedural and substantive requirements under Section 153C. It reiterated that the AO must record a proper satisfaction that the seized documents belong to a person other than the searched person. The Tribunal found that the AO's failure to do so in this case invalidated the assessment proceedings. The Tribunal also referenced the CBDT Circular No. 24/2015, which aligns with the judicial interpretation requiring strict adherence to the procedural requirements under Section 153C.

5. Scope of Assessment under Section 153C/153A:
The Tribunal discussed the limited scope of assessment under Sections 153C and 153A, particularly when no incriminating material is found during the search. It cited several judicial precedents, including the Delhi High Court's decision in Kabul Chawla, which held that completed assessments can only be interfered with based on incriminating material found during the search. In this case, as no such material was found, the Tribunal concluded that the AO's additions were beyond the scope of permissible assessment under Sections 153C and 153A.

Conclusion:
The Tribunal allowed the appeals filed by the assessee, quashing the reassessment proceedings under Section 153C and deleting the additions made under Section 68. The decision was based on the AO's failure to meet the procedural and substantive requirements for invoking Section 153C and the lack of incriminating material to justify the additions. The Tribunal's ruling aligns with established judicial precedents and emphasizes the importance of adhering to legal requirements in reassessment proceedings.