2018 (11) TMI 637 - AT - Income Tax

Invalidity of assessment proceedings u/s 153C - Held that - Assessment proceedings were taken up on various occasions and assessment order under section 143(3) r.w.s. 153C was passed on 30.12.2008. In such scenario, where assessment of searched person was completed on 27.03.2006, then the handing over of seized documents by AO of searched person to the jurisdictional AO of assessee on 15.06.2007 is belated and is beyond the period prescribed in section 153C for initiation of proceedings under section 153C of the Act. Accordingly, we hold so. Even the Circular issued by CBDT dated 31.12.2015 lays down such proposition, in turn, applying the ratio laid down by the Hon ble Supreme Court in the case of M/s. Calcutta Knitwears (2014 (4) TMI 33 - SUPREME COURT). Accordingly, we hold that proceedings initiated under section 153C of the Act are beyond the time prescribed and hence, are invalid and consequently, assessment order passed under section 143(3) r.w.s. 153C of the Act stands annulled

Summary

Issues Involved:

1. Validity of assessment proceedings under section 153C of the Income Tax Act.
2. Requirement of issuing notice under section 143(2) within the prescribed time-limit.
3. Initiation of proceedings based on documents found in the premises of the searched person.
4. Recording of satisfaction by the Assessing Officer of the searched person.
5. Addition under section 69C of the Income Tax Act.

Detailed Analysis:

1. Validity of assessment proceedings under section 153C of the Act:

The assessee challenged the jurisdiction exercised under section 153C of the Act on the basis of documents found in the premises of the searched person, arguing that the conditions of said section were not satisfied. The search was conducted on 29.07.2003, and documents relating to the assessee were seized. These documents were forwarded to the Assessing Officer of the assessee on 30.05.2007, and a notice under section 153C was issued on 05.02.2008. The CIT(A) upheld the initiation of proceedings, stating that the issue of notice was not barred by limitation and was in order. However, the Tribunal noted that the satisfaction note must be prepared by the Assessing Officer of the searched person before handing over the documents to the jurisdictional Assessing Officer of the other person. The Tribunal found that the documents were handed over after the completion of assessment of the searched person, which was beyond the prescribed period, rendering the proceedings under section 153C invalid.

2. Requirement of issuing notice under section 143(2) within the prescribed time-limit:

The assessee argued that the notice under section 143(2) was not issued within the prescribed time-limit, making the assessment/reassessment order invalid. The CIT(A) held that the issue of notice under section 143(2) in cases of assessment/reassessment under section 153A/153C is not prescribed under the Act. The Tribunal did not specifically address this issue separately, as the primary issue of the validity of proceedings under section 153C was found to be decisive.

3. Initiation of proceedings based on documents found in the premises of the searched person:

The assessee contended that the proceedings under section 153C were initiated based on documents found in the premises of the searched person, which did not belong to the assessee. The Tribunal noted that the documents must belong to a person other than the searched person, and the satisfaction note must be recorded before handing over the documents. Since the documents were handed over after the completion of assessment of the searched person, the initiation of proceedings was invalid.

4. Recording of satisfaction by the Assessing Officer of the searched person:

The Tribunal emphasized that the recording of satisfaction by the Assessing Officer of the searched person is a prerequisite before handing over the documents to the jurisdictional Assessing Officer of the other person. The satisfaction note must be prepared at the time of or along with the initiation of proceedings against the searched person, in the course of assessment proceedings, or immediately after the assessment proceedings are completed. In this case, the satisfaction was recorded after the assessment of the searched person, which was not in compliance with the required procedure, rendering the proceedings under section 153C invalid.

5. Addition under section 69C of the Act:

The assessee challenged the addition of ?2,10,000 as interest on alleged borrowings under section 69C, arguing that there was no evidence of such expenditure or borrowings. The Tribunal did not specifically address this issue, as the primary issue of the validity of proceedings under section 153C was found to be decisive, making other grounds of appeal academic in nature.

Conclusion:

The Tribunal held that the proceedings initiated under section 153C of the Act were beyond the prescribed time and invalid, consequently annulling the assessment order passed under section 143(3) r.w.s. 153C of the Act. The appeals of the assessee were allowed, and all other grounds of appeal were considered academic.