2024 (11) TMI 1060 - AT - Income Tax

Validity of proceedings u/s 153C - determination of 6 Assessment Years - HELD THAT - In the present case, the satisfaction has been recorded on 26/09/2018 by the A.O. of the Assessee which falls in the AY 2018-19, the immediate preceding six years would be AY 2013-14 to 2018-19, thus, in our considered opinion, the notice issued by the A.O. u/s 153C of the Act for AY 2011-12 and 2012-13 are beyond the jurisdiction of the A.O. Amendment to Section 153C of the Act w.e.f 01/04/2017 having prospective effect as clarified by the CBDT Circular of 2/2018 dated 15/02/2018, thus we find no reason to justify the action of the A.O. to issue notice u/s 153C for Assessment Year 2011-12 and 2012-13 as the same are not filing in the previous six years , accordingly, assumption of jurisdiction in reopening of assessment u/s 153C for Assessment Year 2011-12 and 2012-13 are void ab initio. Thus the impugned assessment orders for Assessment Year 2011-12 and 2012-13 are hereby quashed. Order to reopen the assessment of the other person u/s 153C - Addition based no no valid satisfaction recorded - Addition of 1% representing the income from commission and total credits and debits reflected in the bank statement of the Assessee company - HELD THAT - AO failed to narrate the specific documents which he was relying upon for initiating the proceedings u/s 153C of the Act and not year wise satisfaction was recorded so as to assess or reassess the total income of the Assessee for the years under consideration. It is found that the A.O. satisfied with the documents seized containing the information relating to searched person and decided to issue notice to other person who is Assessee u/s 153C r.w. Section 153A of the Act. Thus the satisfaction note fails to depict the details of information. In the case of the one of the Company which was also subject to the proceedings u/s 153C pursuant to the very same search and seizure operation conducted on 21/07/2016, in the case of M/s Marconi Infratech 2024 (7) TMI 129 - ITAT DELHI as deleted the addition on account of absence of valid satisfaction having been recorded. On plain reading of the provision of Section 153C it is clear that in order to reopen the assessment of the other person u/s 153C for the Assessment Years earlier to the year of search, direct co relation must exist between the existence of incriminating material and relevant Assessment Year and the reasoning should be logical while recording the satisfaction. In the present case, the seized document at Annexure A-3 does not speak about the issue in respect of the respective Assessment Years sought to be reopened which could ultimately be said to be unexplained and addition thereupon could be made and the said document is not establishing any co-relation, document wise with years under consideration. The essential element for invoking the provision of Section 153C is found missing in the satisfaction recorded on 25/09/2018. Assessee appeal allowed.

Summary

Issues Involved:

1. Assumption of Jurisdiction under Section 153C.
2. Validity of Assessment Orders for A.Y. 2011-12 and 2012-13.
3. Addition of Income from Commission.
4. Satisfaction Note and Incriminating Material.

Detailed Analysis:

1. Assumption of Jurisdiction under Section 153C:

The primary issue revolves around whether the assumption of jurisdiction under Section 153C of the Income Tax Act was valid. The Assessee argued that the jurisdiction was assumed without satisfying the statutory preconditions, as no money, bullion, jewelry, or other valuable articles or documents pertaining to the Assessee were seized during the search. The Tribunal noted that the satisfaction for initiating proceedings under Section 153C was recorded on 25/09/2018, which falls in the Assessment Year 2018-19. Therefore, the immediate preceding six years would be from Assessment Year 2013-14 to 2018-19. The Tribunal concluded that the assumption of jurisdiction for Assessment Years 2011-12 and 2012-13 was beyond the jurisdiction of the Assessing Officer and void ab initio.

2. Validity of Assessment Orders for A.Y. 2011-12 and 2012-13:

The Assessee challenged the validity of the assessment orders for the years 2011-12 and 2012-13, arguing that the orders were void ab initio due to the incorrect application of Section 153C. The Tribunal referred to the amendment to Section 153C effective from 01/04/2017, which was clarified to have a prospective effect. The Tribunal found that the notice issued for these years was not within the 'previous six years' as required, rendering the assessment orders invalid. Consequently, the appeals for these years were allowed, and the assessment orders were quashed.

3. Addition of Income from Commission:

The Assessee contested the addition of Rs. 1,08,16,307/- as income from commission, arguing that it was based on arbitrary assumptions and lacked evidential support. The Tribunal observed that the Commissioner of Income Tax (Appeals) had upheld the addition by applying a rate of 1% on the total credits and debits in the bank statement. However, the Tribunal found the addition to be based on surmises and conjectures without proper substantiation. Thus, the Tribunal quashed the addition, aligning with the Assessee's argument that the addition was arbitrary and excessive.

4. Satisfaction Note and Incriminating Material:

The Tribunal scrutinized the satisfaction note recorded by the Assessing Officer, which failed to specify the documents relied upon for initiating proceedings under Section 153C. The note did not detail the incriminating material or its relevance to the Assessee's income for the years under consideration. The Tribunal referenced the decision in Marconi Infratech, where a similar lack of valid satisfaction was found. The Tribunal reiterated that a direct correlation must exist between the incriminating material and the relevant assessment year. The absence of such correlation in the satisfaction note led the Tribunal to quash the assessment orders for the years under appeal.

In conclusion, the Tribunal allowed the appeals for Assessment Years 2011-12 to 2016-17, quashing the assessment orders due to the improper assumption of jurisdiction under Section 153C, invalid satisfaction notes, and unsubstantiated additions.