2017 (9) TMI 834 - AT - Income Tax

Assessment u/s 153C r.w.s. 143(3) - assessment framed not based on any incriminating material/document - Held that - Notice u/s 143(2) became time barred as on 30.11.2007 whereas search took place much later on 31.10-2009. Therefore it follows that as on the date of search there was no pending assessment. Subsequently the A.O. initiated proceedings under s. 153A and in the assessment completed under s. 143(3) r.w.s 153A without any incriminating material found during the course of search and addition of 1.50 crore was made on the basis of disclosed loan of this amount in the audited accounts. Once this is the position the issue is clearly covered in favour of assessee and against the Revenue by the decision of Hon ble Bombay High Court in the case of Continental Warehousing Corporation (Nhava Sheva) Ltd. 2015 (5) TMI 656 - BOMBAY HIGH COURT). Respectfully following the same and in the given facts we are of the view that this loan of 1.50 crore accounted for in the balance sheet for the year ending 31-03-2006 is disclosed in the return of income as evidence by the audited accounts and which has not been abated the amount of loan cannot be added. Accordingly we reverse the orders of CIT(A) as well as that of the AO and delete the addition made by the AO. This jurisdictional issue of the assessee s appeal is allowed.

Summary

Issues Involved:
1. Legality of notice issued under section 153C and the consequential assessment.
2. Recording of satisfaction for the issuance of notice under section 153C.
3. Nature of documents seized and whether they were incriminating.

Issue-wise Detailed Analysis:

1. Legality of Notice Issued under Section 153C and Consequential Assessment:
The assessee challenged the legality of the notice issued under section 153C and the consequential assessment, arguing that the assessment was not based on any incriminating material/document. The Tribunal noted that the original return of income was filed on 21-11-2006, and no notice under section 143(2) was issued before 30-11-2007, meaning the assessment was not pending as of the search date (31-10-2009). The Tribunal observed that the assessment for AY 2006-07 was completed and had attained finality, and thus, could not be reassessed under section 153C without incriminating material found during the search. The Tribunal concluded that the addition made by the AO was based on audited accounts and not on any incriminating material, rendering the assessment under section 153C invalid.

2. Recording of Satisfaction for Issuance of Notice under Section 153C:
The assessee contended that the satisfaction for issuing the notice under section 153C was not properly recorded. The Tribunal reviewed the satisfaction note and found that it was recorded by the same AO who had jurisdiction over both the searched person and the assessee. The Tribunal cited the case of SSP Aviation Ltd. vs. DCIT, emphasizing that the AO only needs to record satisfaction regarding the ownership of the documents and not necessarily establish undisclosed income at the time of issuing the notice. The Tribunal found no infirmity in the AO's action and upheld the validity of the satisfaction note.

3. Nature of Documents Seized and Whether They Were Incriminating:
The Tribunal examined the documents seized during the search, which included balance sheets, trial balances, profit and loss accounts, and ledger accounts for the FY 2008-09. The Tribunal noted that these documents were already part of the assessee's regular audited accounts and did not constitute incriminating material. The Tribunal referred to the decision of the Hon'ble Bombay High Court in the case of CIT vs. Continental Warehousing Corporation (Nhava Sheva) Ltd., which held that assessments under section 153A/153C should be based on incriminating material found during the search. Since the seized documents were not incriminating and the assessment had already attained finality, the Tribunal concluded that the addition of ?1.50 crore was unjustified.

Conclusion:
The Tribunal allowed the appeal of the assessee, holding that the assessment under section 153C was invalid as it was not based on any incriminating material found during the search. The Tribunal also found that the satisfaction for issuing the notice under section 153C was properly recorded, but the documents seized were not incriminating. Consequently, the addition made by the AO was deleted, and the appeal was allowed in favor of the assessee.