2019 (5) TMI 1595 - AT - Income Tax

Assessment u/s 153C - no recording satisfaction during the assessment proceedings or thereafter of the searched party i.e., Jugal Kajaria (individual) - addition/disallowance made on the ground that no TDS has been made u/s 40(a)(ia) - HELD THAT - No addition/disallowance can be made in an assessment made u/s 153C r.w.s. 143(3) , in the absence of any incriminating material being found during the course of search. The undisputed fact is that there was no incriminating material found during the course of search. The addition/disallowance made for both the assessment years are on the ground that no TDS has been made and hence, the provisions of Section 40(a)(ia), are attracted and on the ground that part of the expenditure claimed could not be substantiated with evidence. Both these disallowances are not based on any material found during the course of search. The assessments for both the Assessment Year have not abated. Accordingly, this ground of cross-objection of the assessee is allowed. - Decided in favour of assessee.

Issues Involved:
1. Validity of notice issued under Section 153A and Section 153C of the Income Tax Act.
2. Jurisdictional challenges regarding the transfer of jurisdiction under Section 127 of the Act.
3. Recording of satisfaction by the Assessing Officer.
4. Disallowance under Section 40(a)(ia) for non-deduction of tax at source.
5. Addition of income based on non-substantiated expenditure claims.
6. Adjudication powers of the CIT(A) regarding the validity of search and assessment orders.
7. Applicability of Section 292B concerning curable mistakes in the notice.
8. Incriminating material found during the search.

Detailed Analysis:

1. Validity of Notice Issued Under Section 153A and Section 153C:
The assessee objected to the notice issued under Section 153A, arguing that no search was conducted against the HUF, and hence, no notice could be issued. The Assessing Officer initially dropped the proceedings under Section 153A and subsequently issued a notice under Section 153C. The CIT(A) quashed the assessment, stating that the satisfaction required by law was not recorded in the file of the searched person (individual) but rather in the file of the HUF. The Tribunal upheld this finding, noting that the satisfaction note was not properly recorded as required by law.

2. Jurisdictional Challenges Regarding Transfer of Jurisdiction:
The assessee raised a jurisdictional ground against the transfer of jurisdiction file under Section 127 of the Act. The CIT(A) held that he did not have the power to decide on the validity of orders passed under Section 127(2) of the Act, transferring jurisdiction of the assessee. This decision was upheld by the Tribunal.

3. Recording of Satisfaction by the Assessing Officer:
The CIT(A) found that the satisfaction for issuing notice under Section 153C was recorded in the file of the HUF and not in the file of the searched person, which is required by law. The Tribunal upheld this finding, emphasizing that the satisfaction note should be recorded during the assessment proceedings or immediately thereafter in the case of the searched person.

4. Disallowance Under Section 40(a)(ia) for Non-Deduction of Tax at Source:
The Assessing Officer made additions under Section 40(a)(ia) for non-deduction of tax at source. The CIT(A) did not adjudicate this ground, and the Tribunal found that these disallowances were not based on any incriminating material found during the search.

5. Addition of Income Based on Non-Substantiated Expenditure Claims:
The Assessing Officer added income based on the assessee's failure to substantiate expenditure claims. The CIT(A) did not adjudicate this ground, and the Tribunal held that such additions could not be made without incriminating material found during the search.

6. Adjudication Powers of the CIT(A) Regarding the Validity of Search and Assessment Orders:
The CIT(A) held that he did not have the power to examine the validity of the search or the orders passed under Section 127(2) of the Act. The Tribunal upheld this decision.

7. Applicability of Section 292B Concerning Curable Mistakes in the Notice:
The CIT(A) held that the mistake in the spelling of the assessee's name was a curable mistake under Section 292B of the Act. The Tribunal did not find any issue with this conclusion.

8. Incriminating Material Found During the Search:
The Tribunal noted that no incriminating material was found during the search, and the additions made by the Assessing Officer were not based on any such material. The Tribunal cited various case laws to support the principle that no addition/disallowance could be made without incriminating material in cases where the assessment had attained finality.

Conclusion:
The Tribunal dismissed the revenue's appeals and allowed the assessee's cross-objections in part, emphasizing the need for proper recording of satisfaction and the presence of incriminating material for making additions under Section 153C. The Tribunal upheld the CIT(A)'s findings on jurisdictional and procedural grounds, reinforcing the importance of adherence to legal requirements in search and seizure cases.

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