2023 (3) TMI 355 - AT - Income Tax

Validity of assessment u/s 153A - necessity of documents as seized which relates to and the information contained therein pertains to the assessee - HELD THAT - The provisions of law, as existing on the date of search namely 04.12.2014 in this case is to be followed. Therefore the satisfaction note recorded by the Assessing Officer on 14.10.2016 (which is extracted in Para 3.2 of this order), invoking the amended provisions of section 153C namely various documents were seized which relates to and the information contained therein pertains to the assessee is not correct in law. Even as per the pre-amended provisions of Section 153C, AO has to record satisfaction to the effect that seized material belongs or belongs to other person. In this case, the A.O. has not put on record that any material seized during the course of search does belong to the assessee. However seized materials related to other third party. Therefore in our considered view, the invocation of proceedings u/s. 153C is against the provisions of law. As prior to the amendment the material found from the premises of the searched person, should be belonging to the person in whose case the material is to be used by drawing satisfaction and for issuance of notice u/s. 153C. Decided against revenue.

Summary

Issues Involved:
1. Validity of proceedings under section 153C of the Income Tax Act.
2. Use of documents found during the survey under section 133A for assessment.
3. Addition of unaccounted on-money receipts under section 69A.
4. Jurisdictional and procedural errors in the assessment process.

Issue-wise Detailed Analysis:

1. Validity of Proceedings under Section 153C of the Income Tax Act:
The core issue was whether the proceedings initiated under section 153C were valid. The search action was conducted on December 4, 2014, and the satisfaction note was recorded on October 14, 2016. The pre-amended section 153C required that the seized material "belongs or belong to" the other person, whereas the amended section effective from June 1, 2015, allowed for the material to "pertain to or relate to" the other person. The Tribunal noted that the search was conducted before the amendment came into effect, and thus, the pre-amended provisions should apply. The Tribunal concluded that the satisfaction note invoking the amended provisions was not legally tenable because the material did not "belong" to the assessee as required by the pre-amended law. This position was reinforced by the jurisdictional High Court's decisions, which clarified that the date of search is the relevant date for applying the provisions of section 153C.

2. Use of Documents Found During the Survey under Section 133A for Assessment:
The Tribunal addressed whether documents found during a survey under section 133A could be used for assessments under section 153C. The CIT(A) had ruled that there is no provision in section 153C that allows the use of materials found during a survey for assessment purposes. The Tribunal upheld this view, stating that section 153C refers to materials "seized" or "requisitioned" under sections 132 and 132A, not materials found during a survey under section 133A. Thus, the additions based on the survey documents were deemed illegal and contrary to the provisions of section 153C.

3. Addition of Unaccounted On-Money Receipts under Section 69A:
The Revenue had added unaccounted on-money receipts as unexplained cash credits under section 69A. The CIT(A) deleted these additions on legal grounds, without addressing the merits. The Tribunal supported this decision, noting that the additions were based on documents that did not meet the jurisdictional requirements of section 153C. Furthermore, the Tribunal referenced case law indicating that on-money should be taxed in the year the sale deed was executed or the sales were registered, not in the year of receipt.

4. Jurisdictional and Procedural Errors in the Assessment Process:
The assessee argued that the assessment was invalid due to the lack of a valid notice under section 143(2) and that the approval under section 153D was granted mechanically. The Tribunal did not specifically address these procedural grounds in detail, as the legal grounds for invalidating the section 153C proceedings were sufficient to resolve the case. The Tribunal concluded that the initiation of proceedings under section 153C was not in accordance with the law, rendering the subsequent assessments and additions invalid.

Conclusion:
The Tribunal dismissed the Revenue's appeals and the assessee's cross-objections, upholding the CIT(A)'s decision to delete the additions made by the AO. The Tribunal emphasized that the amended provisions of section 153C could not be applied retrospectively to searches conducted before June 1, 2015, and that materials found during a survey could not be used for assessments under section 153C. The legal and procedural errors in the initiation of proceedings under section 153C were sufficient to invalidate the assessments and additions made by the AO. The judgment was pronounced in the open court on February 28, 2023.