2019 (10) TMI 350 - AT - Income Tax

Assessment u/s 153C r/w section 153A - proof of incriminating material has been unearthed pertaining to assessee having reflection on the income of the assessee - HELD THAT - Both conditions have not been satisfied by the AO of the searched person and then AO of the other person, the assessee in this case, has mechanically proceeded to initiate the proceedings u/s 153C and 153A by merely recording the word satisfaction that the seized documents belong to assessee. It is difficult to make out from the satisfaction note recorded in case of searched person and in case of other person, the requisite satisfaction as required u/s 153C of the Act. We are constrained to record that both the satisfaction note dated 20.01.2014 and 23.01.2014 recorded in case of searched person and in case of such other person are identical and are not in consonance with the provisions contained u/s 153C of the Act. Furthermore, the AO has also failed to conclude as to how the alleged documents were incriminating in nature in order to assess the income of the assessee u/s 153C of the Act. So, in the absence of existence of any incriminating material, power u/s 153C cannot be invoked. When the assessment or reassessment, as the case may be, has been made u/s 153C, the necessary requirements to proceed with such initiation of assessment proceedings must be fulfilled. But, in the instant case, as discussed in the preceding paras, the AO has failed to record the satisfaction note as required u/s 153C rather mechanically recorded the satisfaction and made the assessment. The contention raised by the ld. DR and case laws relied upon are not applicable to the facts and circumstances of the case. - Decided in favour of assessee

Issues Involved:
1. Jurisdictional validity of assessment orders under Section 153C read with Section 153A.
2. Confirmation of additions as unexplained cash credit under Section 68.
3. Validity of the satisfaction note for initiating proceedings under Section 153C.
4. Relevance and incriminating nature of seized documents.
5. Procedural errors and compliance with legal requirements.

Issue-Wise Detailed Analysis:

1. Jurisdictional Validity of Assessment Orders under Section 153C read with Section 153A:
The primary issue raised by the assessee was the jurisdictional validity of the assessment orders framed under Section 153C read with Section 153A. The Tribunal noted that the Assessing Officer (AO) of the searched person must arrive at a clear satisfaction that the seized documents do not belong to the searched person but to some other person. The satisfaction note dated 20.01.2014 prepared by the AO of M/s. ABW Infrastructure (P) Ltd. and the satisfaction note dated 23.01.2014 prepared by the AO of the assessee were found to be verbatim the same, failing to reflect how the documents belonged to the assessee and were incriminating in nature. The Tribunal concluded that the AO had mechanically recorded the satisfaction without proper basis, making the jurisdictional assumption under Section 153C invalid. Consequently, the assessment orders for AYs 2009-10, 2010-11, and 2011-12 were quashed due to jurisdictional errors.

2. Confirmation of Additions as Unexplained Cash Credit under Section 68:
The AO had made additions of ?73,45,000, ?51,50,000, ?84,70,000, and ?70,10,000 for AYs 2009-10, 2010-11, 2011-12, and 2012-13 respectively, on account of unexplained cash credits under Section 68. The Tribunal observed that the AO's additions were based on heavy cash deposits noticed in the assessee's bank account. However, since the satisfaction note and the jurisdictional basis for initiating proceedings under Section 153C were found to be flawed, the additions made under Section 68 were also rendered unsustainable.

3. Validity of the Satisfaction Note for Initiating Proceedings under Section 153C:
The Tribunal scrutinized the satisfaction notes prepared by the AO of the searched person and the AO of the assessee. It was found that the satisfaction notes were identical and lacked specific details on how the documents allegedly belonged to the assessee and were incriminating. The Tribunal emphasized that mere mention of the word "satisfaction" without a clear basis does not fulfill the legal requirements under Section 153C. The Tribunal relied on the judgments of the Hon'ble Delhi High Court in CIT vs. RRJ Securities Ltd. and Pepsico India Holdings Private Ltd. vs. ACIT, which mandated that the AO must have cogent material to rebut the presumption that the seized documents belong to the searched person.

4. Relevance and Incriminating Nature of Seized Documents:
The Tribunal noted that the AO failed to demonstrate how the seized documents were incriminating in nature and how they belonged to the assessee. The documents referred to by the AO, such as SMS transcripts and transaction details with M/s. ABW Infrastructure Ltd., were not shown to be directly linked to the assessee's income. The Tribunal held that in the absence of incriminating material, the power under Section 153C could not be invoked, as supported by the Hon'ble Supreme Court's judgment in CIT vs. Sinhgad Technical Education Society.

5. Procedural Errors and Compliance with Legal Requirements:
The Tribunal highlighted procedural errors, including the failure to provide the assessee with copies of all relevant seized documents (Annexures A-8 to A-16). The AO's reliance on statements recorded under Section 132(4) and Section 131 without proper jurisdictional basis was also criticized. The Tribunal concluded that the assessment orders for AY 2012-13, framed under Section 143(3) instead of Section 153C, were also invalid due to jurisdictional errors.

Conclusion:
The Tribunal quashed the assessment orders for AYs 2009-10, 2010-11, and 2011-12 framed under Section 153C read with Section 153A, and for AY 2012-13 framed under Section 143(3), due to jurisdictional errors and lack of incriminating material. The appeals filed by the assessee were allowed, and the assessment orders were declared unsustainable in law.

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