2024 (7) TMI 702 - AT - Income Tax

Assessment u/s. 144 r.w.s. 153C - jurisdiction to assess income of person other than the searched person - unexplained investment u/s 69B - difference in consideration between sale agreement and registered deed in respect of purchase of properties by the assessee - HELD THAT - In the present case, as per satisfaction note dated 17.09.2020 recorded by the AO DCIT, Central Circle 2(1) , Chennai, it is clearly evident that the AO has recorded satisfaction u/s. 153C of the Act, on the basis of sale agreement dated 01.04.2015 and two registered sale deeds dated 25.08.2015 which were found and impounded during the course of search in appellant s own case on 05.07.2018. Therefore, we are of the considered view that the satisfaction note recorded by the Assessing Officer u/s. 153C of the Act to assume jurisdiction to assess income of person other than the searched person based on material found during the course of survey in appellant s own case is invalid and unsustainable in law. In so far as arguments of the DR that, the survey u/s. 133A of the Act in the case of the assessee is triggered in pursuant to search action u/s. 132 of the Act conducted in the case of M/s. Christy Fried Gram Industry does not alter the legal position that, proceedings u/s. 153C of the Act can be initiated only when the Assessing Officer of the searched person records a satisfaction that any money, bullion or other valuable article or thing seized or requisitioned, belongs to or any books of accounts or documents seized or requisitioned pertains to or any information contain therein relates to a person other than the person referred to in section 153A of the Act. Therefore, mandatory condition to invoke jurisdiction u/s. 153C of the Act is not satisfied and thus, notice issued by AO u/s. 153C and consequent assessment order passed u/s. 144 r.w.s. 153C of the Act is illegal and unsustainable in law. Merely because search and survey are carried out simultaneously at several places, material found during the course of survey does not authorize the Assessing Officer to make assessment u/s. 153C of the Act - See Sai Shraddha Enterprises 2022 (12) TMI 1359 - ITAT MUMBAI No error in the reasons given by the ld. CIT(A) to annul the assessment order passed by the Assessing Officer u/s. 144 r.w.s. 153C - reject grounds taken by the revenue. Addition u/s 69B - whether the assessee is able to explain source for purchase of property and is there any unexplained investment in respect of agreement of sale dated 01.04.2015 as alleged by the AO? - Though the assessee has disclosed purchase of properties as per agreement of sale dated 01.04.2015 and filed return of income u/s. 139 of the Act, the Assessing Officer completed the assessment without examining the said documents on the allegation that the assessee had not furnished any information in response to notices issued u/s. 142(1) of the Act. In our considered view, in a case of best judgment assessment u/s. 144 of the Act, the AO is required to apply his mind to the material already available on record such as return of income, tax audit report, financial statements etc., to the extent of which they are relevant to the issue under consideration. Adherence to Rule 46A regarding additional evidence - AO did not make any attempt to verify documents before arriving at the conclusion that the assessee has paid on-money for purchase of property. From the above, it is undoubtedly clear that the AO has passed the assessment order without application of mind and thus, when the CIT(A) after considering return of income and financial statements allowed relief, it cannot be said that there is a violation of rule 46A of the Income tax Rules, 1962. There is no merit in the contention of the revenue that the Assessing Officer lost an opportunity of examining the source of capital contribution of the partners and valuation of machineries as per sale agreement due to the omission to call for a remand report is not tenable. Since, the scope of the assessment u/s. 153C of the Act is strictly limited to the seized material in the case of the searched person, because the assessment for the instant assessment year 2016- 17 is unabated assessment. In the present case, the department did not unearth any seized material which pertains, or contains any information relating to the appellant and thus, it is legally not permissible for the Assessing Officer to examine the source of capital contribution from partners and valuation of machinery for the purpose of making additions. Therefore, we are of the considered view that there is no merit in arguments of the ld. DR present for the revenue and thus, rejected. AO erred in making additions towards purported on-money payment for purchase of properties as per agreement of sale dated 01.04.2015 and two registered sale deed dated 24.08.2015 u/s. 69B - Decided against revenue.

Summary

Issues Involved:
1. Validity of proceedings initiated under Section 153C of the Income Tax Act.
2. Addition of Rs. 5,25,00,000/- under Section 69B for unexplained investment.

Detailed Analysis:

1. Validity of Proceedings Initiated under Section 153C:

The primary issue revolves around whether the proceedings initiated by the Assessing Officer (AO) under Section 153C of the Income Tax Act were valid. The AO initiated these proceedings based on materials found during a survey under Section 133A at the assessee's premises, which was connected to a search under Section 132 in the case of M/s. Christy Fried Gram Industry. The AO recorded a satisfaction note on 17.09.2020, stating that documents found during the survey indicated a discrepancy in the sale consideration of a property.

The Commissioner of Income Tax (Appeals) [CIT(A)] held that the proceedings under Section 153C were invalid because the materials used to initiate the proceedings were found during a survey, not a search. According to Section 153C, proceedings can only be initiated based on materials found during a search of a person other than the searched person. The CIT(A) concluded that since the materials were found during a survey at the assessee's premises, the initiation of proceedings under Section 153C was not legally sustainable.

2. Addition of Rs. 5,25,00,000/- under Section 69B for Unexplained Investment:

The AO made an addition of Rs. 5,25,00,000/- under Section 69B, alleging that the assessee paid on-money for purchasing a property. The AO based this addition on the difference between the sale consideration mentioned in a sale agreement dated 01.04.2015 (Rs. 7,45,00,000/-) and the amounts in two registered sale deeds dated 25.08.2015 (Rs. 2,20,00,000/-).

The CIT(A) deleted the addition, noting that the assessee had accounted for the entire consideration of Rs. 7,45,00,000/- in its books of accounts and explained the sources for the investment. The CIT(A) observed that the sale agreement included the purchase of land, building, and machinery, and the entire consideration was reflected in the assessee's financial statements and return of income filed for the assessment year 2016-17, which was before the survey date.

The CIT(A) also pointed out that the AO failed to consider that the sale agreement included movable properties (machinery) that did not require a registered sale deed. The CIT(A) concluded that the AO's addition was based on a misconception and that the assessee had fully disclosed the investment in its books.

Conclusion:

The Tribunal upheld the CIT(A)'s decision, confirming that the proceedings under Section 153C were invalid as they were based on materials found during a survey, not a search. The Tribunal also agreed with the CIT(A) that the addition under Section 69B was unjustified, as the assessee had accounted for the entire sale consideration in its books and explained the sources for the investment. Consequently, the appeal filed by the revenue was dismissed, and the cross-objection filed by the assessee was deemed infructuous.