2022 (8) TMI 1290 - AT - Income Tax

Validity of assessment u/s 153C - six previous assessment years for the purpose of assessment u/s 153C - Assessee challenged assessment on defective satisfaction note, stating that satisfaction-note was recorded on 13.01.2015, therefore, assessment year 2008-09 does not fall in the definition of previous six years to make the assessment under section 153C - Whether notice u/s 153C can be issued for six years immediately preceding the assessment year in which the search was initiated? - HELD THAT - As satisfaction note has not been recorded within normal period allowed by the Act and rather it has been recorded after Fifteen Months and Thirteen days, and moreover it is combined satisfaction note and in the Income Tax Act there is no concept of combined satisfaction note, therefore such satisfaction note contains several defects and hence assessment framed based on such satisfaction note should be quashed. Since the satisfaction note is recorded on 13.01.2015, which pertains to assessment year 2015-16. Therefore, six previous assessment years for the purpose of assessment under section 153C of the Act, would be assessment years 2014-15, 2013-14, 2012-13, 2011-12, 2010-11 and 2009-10. Therefore, assessment year 2008-09 should be excluded from the ambit of section 153C of the Act. We find merit in the submission of ld Counsel that period of six years should be reckoned with respect to the date of recording of satisfaction note and not the date of search. Respectfully following the judgment of Hon ble High Court of Delhi in the case of RRJ Securities Limited 2015 (11) TMI 19 - DELHI HIGH COURT and in the case of Sarwar Agency (P) Limited 2017 (8) TMI 733 - DELHI HIGH COURT we quash the assessment order framed by the Assessing Officer under section 144 r.w.s. 153C - Decided in favour of assessee. Allowability of expenditure - We note that assessee is not doing actual business and earned only commission income on sales, import and loan entry. Hence, the books of account maintained by the assessee is not reliable and rejected u/s 145(3) of the Act by the Assessing Officer and then after Assessing Officer passed order u/s 144 of Act, on best judged assessment basis. The assessee is doing import on behalf of client who is not identified by the assessee therefore it was held by the Assessing Officer that all expenses like exchange loss, VAT payment, octroi payment, custom duties and all statutory expenses are also met by such client on whose behalf the goods are imported. As per the given working, we note that Assessing Officer also allowed deduction of expenses at the rate of 25% for paper transactions and related costs, hence we note that assessing officer passed reasoned and speaking order therefore assessee does not deserve further relief, therefore, we dismiss all the appeals of these assessee on merit.

Issues Involved:
1. Validity of proceedings under Section 153C.
2. Confirmation of order passed under Section 144.
3. Rejection of books of account without pointing out defects.
4. Violation of principles of natural justice.
5. Addition treating business as fictitious and commission-based.
6. Disallowance of genuine expenditure.

Detailed Analysis:

1. Validity of Proceedings under Section 153C:
The core issue was whether the notice issued under Section 153C was valid. The Tribunal noted that the satisfaction note was recorded on 13.01.2015, which pertains to the assessment year 2015-16. As per the proviso to Section 153C, the six previous assessment years for the purpose of assessment would be 2014-15 to 2009-10, thereby excluding 2008-09. The Tribunal relied on the judgments of the Delhi High Court in the cases of RRJ Securities Ltd. and Sarwar Agency (P) Ltd., which held that the period of six years should be reckoned with respect to the date of recording of the satisfaction note. Consequently, the Tribunal quashed the assessment order for the assessment year 2008-09 in the case of M/s Maniprabha Impex Pvt. Ltd. and M/s Dharam Impex.

2. Confirmation of Order Passed under Section 144:
The Tribunal upheld the Assessing Officer's (AO) decision to pass the assessment order under Section 144, as the assessee did not cooperate during the assessment proceedings. The AO had made the assessment on a best-judged basis due to the non-cooperation of the assessee.

3. Rejection of Books of Account without Pointing Out Defects:
The AO rejected the books of account under Section 145(3) on the grounds that the assessee was not conducting actual business but was earning commission income from sales, imports, and loan entries. The Tribunal found that the AO had sufficient grounds for rejecting the books of accounts, as the business activities of the assessee were found to be fictitious and aimed at providing accommodation entries.

4. Violation of Principles of Natural Justice:
The assessee contended that the assessment order was framed without providing an opportunity to cross-examine witnesses and without furnishing material evidence. The Tribunal noted that the major evidences relied upon were collected from the assessee itself and that the assessee was given ample opportunity to present its case. Therefore, the Tribunal dismissed this ground.

5. Addition Treating Business as Fictitious and Commission-Based:
The AO had made additions by treating the assessee's business as fictitious and holding that the assessee was only a commission agent and accommodation entry provider. The Tribunal upheld this addition, noting that the AO had based his findings on the incriminating materials found during the search, including statements from the assessee and corroborative evidence.

6. Disallowance of Genuine Expenditure:
The AO had disallowed genuine expenditure and allowed only 25% of commission income as expenditure on an ad-hoc basis. The Tribunal found that the AO's decision to allow only 25% of the commission income as expenditure was reasonable, given the nature of the assessee's business activities.

Conclusion:
The Tribunal allowed the appeals for the assessment year 2008-09 in the cases of M/s Maniprabha Impex Pvt. Ltd. and M/s Dharam Impex on the ground of invalidity of proceedings under Section 153C. However, for the remaining assessment years and other issues, the Tribunal dismissed the appeals, upholding the AO's findings and the orders passed under Section 144.

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