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2023 (3) TMI 552 - AT - Income TaxValidity of Assessment u/s 153A - material found in the case of some other person - proof of incriminating materials found during the search about the assessee - HELD THAT - In the present appeals for AY 2006-07 to 2009-10, there was a search u/s132 of the Act in the case of the assessee on 30.6.2011. No incriminating materials were found during the said search. It is not in dispute that none of the additions made in the aforesaid assessment years is based on material seized and found in the course of search conducted in the case of the assessee on 30.6.2011. After the search, notices under section 153A of the Act were issued on 30.11.2011 and thereafter assessments were framed by the AO. The material based on which the impugned additions were made by the AO were material found in the course of search of Smt. Adlene Kagoo on 12.4.2011. As per the second proviso to section 153C of the Act, the assessment proceedings pending under section 153A of the Act in the case of the assessee before the AO would abate on the date the AO receives the seized material from the AO of Smt. Adlene Kagoo and fresh proceedings under section 153C of the Act ought to have been initiated. As seen upon receipt of the said information/materials, the AO did not assume jurisdiction under section 153C of the Act, but rather chose to use the said materials/information for making additions in the impugned orders of assessment concluded under section 153A of the Act. The AO has discussed these additions in the order of assessment and clear referred to the documents found in the course of search of Smt. Adlene Kagoo. Thus, the AO has not followed the procedure laid down in section 153C of the Act for taking cognizance of the material found/seized in the case of Smt. Adlene Kagoo and making an assessment with reference to those materials in the case on hand. We are of the view that in the event the AO wanted to take cognizance of the seized materials, he ought to have invoked the provisions section 153C of the Act after recording his satisfaction based on material sent by the AO of Smt. Adlene Kagoo. This jurisdictional pre-condition laid down by the Legislature of recording of satisfaction for taking action under section 153C of the Act cannot be side-stepped/brushed aside and additions be made in proceedings pending under section 153A of the Act as the scope of assessments framed under sections 153A and 153C of the Act are quite different. In that view of the matter, we hold that the additions made by the AO in the impugned orders of assessment for Assessment Years 2006-07 to 2009-10 cannot be sustained as they are contrary to the provisions of the Act and are therefore to be deleted. Hence, those additions to the extent sustained by the CIT(A) are hereby deleted. - Decided in favour of assessee.
Issues Involved:
1. Validity of assessments under Section 153A based on materials found in the search of a third party. 2. Requirement of invoking Section 153C for assessments based on third-party search materials. 3. Legality of additions made by the Assessing Officer (AO) without following the procedure under Section 153C. 4. Validity of search conducted under Section 132. 5. Specific additions made for various assessment years based on seized documents. Issue-Wise Detailed Analysis: 1. Validity of Assessments under Section 153A Based on Materials Found in the Search of a Third Party: The primary issue was whether the AO could make additions under Section 153A based on materials found during a search of a third party, Smt. Adlene Kagoo. The Tribunal noted that the additions were made based on documents found in the search of Smt. Adlene Kagoo, not in the search of the assessee. The Tribunal highlighted that Section 153A allows assessments based on materials found during the search of the assessee, not third parties. Therefore, the additions based on third-party documents were not sustainable under Section 153A. 2. Requirement of Invoking Section 153C for Assessments Based on Third-Party Search Materials: The Tribunal emphasized that if the AO wanted to use materials found during the search of a third party, the proper procedure under Section 153C should have been followed. Section 153C requires the AO to record satisfaction that the seized materials pertain to a person other than the one searched and then transfer the materials to the AO of that person. The AO must then assume jurisdiction under Section 153C and proceed with the assessment. In this case, the AO did not follow this procedure, making the additions invalid. 3. Legality of Additions Made by the AO Without Following the Procedure Under Section 153C: The Tribunal found that the AO used seized documents from Smt. Adlene Kagoo's search to make additions without invoking Section 153C. The Tribunal referred to precedents, including the Kolkata Bench of ITAT in Krishna Kumar Singhania and the Bombay High Court in HDFC Bank Ltd., which supported the view that materials from a third-party search could not be used for additions under Section 153A without following Section 153C. Therefore, the Tribunal concluded that the additions made by the AO were contrary to law and had to be deleted. 4. Validity of Search Conducted Under Section 132: For the assessment years 2010-11 and 2011-12, the assessee challenged the validity of the search conducted under Section 132. However, since the income returned by the assessee was accepted by the AO, and no additions were made, these appeals were dismissed as infructuous. 5. Specific Additions Made for Various Assessment Years Based on Seized Documents: The Tribunal detailed specific additions made by the AO for different assessment years: - For AY 2006-07, an addition of Rs. 7,75,00,000/- was made based on alleged cash payments outside the books of accounts. - For AY 2007-08, additions included Rs. 5,10,00,000/- for cash payments, Rs. 55,29,601/- for interest, and Rs. 13,08,00,000/- for loans given. - For AY 2008-09 and 2009-10, additions of Rs. 1,02,02,005/- and Rs. 15,52,636/- respectively were made for interest. The CIT(A) provided partial relief, deleting some additions but sustaining others. The Tribunal, however, deleted all additions sustained by the CIT(A), as they were based on materials found in the search of Smt. Adlene Kagoo without following the procedure under Section 153C. Conclusion: The Tribunal allowed the appeals for AY 2006-07 to 2009-10, deleting the additions made by the AO. The appeals for AY 2010-11 and 2011-12 were dismissed as infructuous. The Tribunal emphasized that the AO must follow the procedure under Section 153C when using materials found in the search of a third party, and any additions made without following this procedure are invalid.
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