2021 (7) TMI 155 - AT - Income Tax

Validity of proceedings u/s 153C - HELD THAT - Assessing Officer had first of all issued his notice dt. 13-01-2012 u/s. 153A of the Act an admitted fact that the department had also conducted the search in assessee's case as well. And also that Assessing Officer had issued Section 153C notice on 13-01-2012 only. Meaning thereby that the crucial date herein i.e., 13-01-2012 witnessed the Assessing Officer's twin folded action initiating both the 153A as well as 153C proceedings culminating in the impugned assessment u/s. 153C of the Act. We hold in this clinching factual backdrop that the impugned assessment suffers from a patent legal defect at the threshold itself since the Assessing Officer ought to have initiated the same u/s. 153A in case of the searched assessee than a third party. We thus adopt stricter construction going by hon'ble apex court's full bench decision Commissioner of Customs Vs. Dilip Kumar 2018 (7) TMI 1826 - SUPREME COURT and quash the impugned assessment itself as 'invalid'.

Summary

Issues:
1. Delay in filing appeals and its condonation.
2. Validity of Section 153C proceedings.
3. Additional ground challenging validity of Section 153C notice.

Detailed Analysis:
1. The appeals by two assessees for AY 2006-07 were filed against the CIT(A)-12, Hyderabad's orders involving proceedings under Section 143(3) r.w.s. 153C of the Income Tax Act, 1961. The delay in filing the appeals was attributed to reasons beyond the assessees' control. The tribunal condoned the delay as there was no rebuttal from the departmental side.

2. The first assessee challenged the initiation of Section 153C proceedings and an unexplained investment addition in the assessment. The assessee also sought to raise an additional ground regarding the Assessing Officer not recording reasons before issuing the Section 153C notice. The tribunal admitted the additional ground based on relevant case laws, allowing the challenge to the validity of the assessment proceedings.

3. The legal issue of the validity of Section 153C proceedings was thoroughly examined. It was noted that the Assessing Officer had initiated both Section 153A and 153C proceedings on the same date. The tribunal held that the assessment under Section 153C was legally defective as it should have been initiated under Section 153A for the searched assessee. Citing relevant case law, the tribunal quashed the assessment as invalid, rendering other arguments on merits moot.

4. The second assessee also challenged the validity of the Section 153C notice through an additional ground. The tribunal rejected technical arguments from the Revenue and followed the reasoning from the first assessee's appeal to accept the challenge to the notice's validity.

5. The tribunal scrutinized the Section 153C notice issued to the second assessee and found that it lacked clarity on whether the incriminating material found during the search belonged to the assessee. Adopting a strict interpretation, the tribunal held that the satisfaction required by the Act was not recorded before proceeding against the assessee. Consequently, the impugned assessment was quashed, and other arguments on merits were deemed irrelevant.

In conclusion, both assessees' appeals were allowed, and the tribunal ordered a copy of the common order to be placed in the respective case files. The judgment was pronounced on June 29, 2021.