2023 (10) TMI 204 - HC - Income Tax

Assessment u/s 153A - unexplained asset found in the course of search - assessee raised an objection as the AY 2011-12 was beyond the normal period of six assessment years and reopening of the ninth AY in terms of the fourth proviso to Section 153A of the Act was beyond jurisdiction - As argued contents of seized material are neither incriminating in nature nor do they in any manner reveal income represented in form of assets which had escaped assessment - HELD THAT - We have no hesitation in holding that the AO did not have in his charge, any Jurisdictional fact (on or prior to 05.12.2019) to invoke and issue notice u/s 153C of the Act to the respondent assessee. The extended jurisdiction to invoke/assess 7th to 10th AY is conferred on the AO by authority of law and the AO cannot confer to himself the jurisdiction in a casual manner by stating/substituting the specific jurisdictional fact. As imperative that before issuance of notice u/s 153C (for the extended period) the AO sets out his objective satisfaction from the seized material, the details of the specified/undisclosed assets in possession qua the assessee for AY 2011-12 valued at Rs. 50 lacs or more. If this essential requirement of law is not satisfied, the AO does not get the authority of law to invoke the jurisdiction u/s 153A of the Act for 7th to 10th AY. As assessee had disclosed the sale transactions and liquidation of shares in his regular books of accounts and the liquidation of shares were received in bank. Thus the aforementioned assets cannot be termed as undisclosed assets. It has been appositely concluded in the concurrent decisions of the CITA and ITAT that it cannot be held that the allegedly undisclosed assets have escaped assessment. Addition was on account of unexplained cash credit represented by sale proceeds u/s 68 - The additions on account of unexplained cash credit , could not have been made by the AO, unless he initially made an addition of undisclosed asset valued at Rs. 50 lacs or more. In this case, as there was no addition made by the AO on account of undisclosed assets, ex consequenti, an inference deserves to be drawn that there was no jurisdictional fact for the AO to assume jurisdiction u/s 153C for AY 2011-12. The usurpation of jurisdiction u/s 153C of the Act is bad in law, for want of jurisdiction as the AO was precluded from making any other addition in the assessment for AY 2011-12. Therefore, the AO s action of addition u/s 68 of the Act for the relevant AY 2011-12 is untenable in the eyes of law. As observed in Singhad Technical Education Society s case 2017 (8) TMI 1298 - SUPREME COURT that unless and until the AO establishes correlation between what has been seized from the searched person and how the same is incriminating in nature qua each of the assessment years in question for which jurisdiction u/s 153C is sought to be invoked for the other person (assessee in this case), then the notice u/s 153C to the assessee/third party qua the assessment year would be without satisfying the jurisdictional fact required to invoke Section 153C. As held by the ITAT that on the date of search the income tax assessment for AY 2011-12 of the assessee stood unabated. The concurrent decisions of both the CITA and the ITAT reflect that no incriminating materials were found during the search conducted by the AO. The pages 61 to 69 cannot be termed as undisclosed or unaccounted assets on the basis of the assessment order (Annexure-A). The addition to the income of the assessee u/s 68 of the IT Act for the relevant AY 2011-12 was found to be untenable in law.

Issues Involved:
1. Validity of the proceedings initiated under Section 153C of the Income Tax Act.
2. Requirement of jurisdictional fact for invoking Section 153C.
3. Validity of additions made under Section 68 of the Income Tax Act.
4. Requirement of issuing mandatory notice under Section 143(2) of the Income Tax Act.

Summary:

1. Validity of the proceedings initiated under Section 153C of the Income Tax Act:
The assessment was conducted for the year 2018/2019, and notices were issued under Section 153A assuming the respondent was searched, which was incorrect. The assessee raised objections challenging the validity of the notices issued under Section 153C for AY 2011-12, arguing that it was beyond the normal period of six assessment years and reopening the ninth AY was beyond jurisdiction. The AO did not provide details of the 'unexplained asset' found during the search, leading to the conclusion that the proceedings initiated under Section 153C were invalid.

2. Requirement of jurisdictional fact for invoking Section 153C:
The assessee contended that the AO could not have assumed jurisdiction under Section 153A without possessing undisclosed/unaccounted assets valued at Rs. 50 lacs or more. The ITAT observed that the satisfaction note did not reveal any 'asset' that had escaped assessment. The AO's case was based on journal and bank ledgers, which were part of regular books of accounts, and no undisclosed assets were found. The concurrent decisions of the CITA and ITAT concluded that the addition made by the AO was without jurisdiction.

3. Validity of additions made under Section 68 of the Income Tax Act:
The AO added Rs. 9,63,00,000/- as unexplained cash credit under Section 68, despite the assessee's explanation that the transaction was disclosed in regular books of accounts. The ITAT held that the addition was made without jurisdiction as no undisclosed assets were found. The addition on account of unexplained 'cash credit' could not be made unless there was an initial addition of undisclosed 'asset' valued at Rs. 50 lacs or more.

4. Requirement of issuing mandatory notice under Section 143(2) of the Income Tax Act:
The learned CIT(A) found that the AO had not issued the mandatory notice under Section 143(2) after the assessee filed the return of income, which vitiated the assessment for AY 2011-12. The ITAT upheld this finding, reinforcing that the assessment was invalid.

Conclusion:
The appeal was dismissed as it did not involve any substantial question of law, and the concurrent findings of the CITA and ITAT were upheld. The AO's action of adding Rs. 9,63,00,000/- under Section 68 was found to be untenable in law, and the proceedings under Section 153C were deemed invalid for want of jurisdiction.

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