2023 (8) TMI 1339 - AT - Income Tax

Validity of the assessment made u/s 153C - adhoc disallowance of assumed expenditure - i ncriminating material found during search or not? - HELD THAT - As even after the amendment, AO can proceed only on the basis of incriminating material which has a bearing on determination of the total income of such other person. Nowhere in the Satisfaction Note it has been mentioned that the said description of shares is related to alleged business of providing accommodation entries by the captioned assessees. In light of the decision of Singhad Technical Education Society 2017 (8) TMI 1298 - SUPREME COURT has held that when the seized documents did not establish any co-relation document wise with the assessment years in question, then the validity of the assessment so framed was legally unsustainable. Thus we are of the considered view that the additions/disallowance, devoid of any incriminating material found during the course of search, cannot validate the assessment orders framed u/s 153C of the Act. Decided in favour of assessee.

Summary

Issues Involved:
The judgment involves challenges to the validity of assessments made under section 153C of the Income-tax Act, 1961 and adhoc disallowance of assumed expenditure sustained by the ld. CIT(A).

Validity of Assessment under Section 153C:
The judgment pertains to appeals by various companies against orders of the ld. CIT(A) dated 07.02.2020 for assessment years 2012-13 to 2016-17. The appeals challenged the validity of assessments made under section 153C of the Income-tax Act. The underlying facts in all the appeals were found to be identical, leading to a common disposal of the appeals for convenience.

Assumed Expenditure Disallowance:
Apart from challenging the validity of the assessments under section 153C, the assessees contested the adhoc disallowance of assumed expenditure partly sustained by the ld. CIT(A). The assessment orders were based on incriminating material found during search and seizure operations, leading to additions and disallowances by the Assessing Officer.

Key Details:
The search and seizure operation was conducted on a group suspected of providing accommodation entries to beneficiaries. Incriminating papers were seized, leading to the initiation of proceedings under section 153C of the Act. The Assessing Officer made additions on account of commission on accommodation entries and disallowed assumed expenditure incurred in providing accommodation entries.

Legal Analysis:
The judgment extensively analyzed the legal provisions under section 153C of the Act and relevant circulars issued by the CBDT. It emphasized the requirement for incriminating material to validate assessments under section 153C. The court referred to a Supreme Court decision highlighting the necessity of a direct nexus between impounded material and additions made in the assessment.

Decision and Conclusion:
The court found that the assessment orders lacked any incriminating material to support the additions and disallowances made. Citing the Supreme Court decision and relevant provisions, the court quashed the assessment orders under section 153C. Consequently, all appeals by the assessees were allowed on the challenge to the validity of the assessment orders.

Final Outcome:
The judgment pronounced on 25.08.2023 resulted in the allowance of all appeals by the assessees, primarily on the grounds of the invalidity of the assessment orders under section 153C of the Income-tax Act, 1961.