2013 (12) TMI 1528 - AT - Income Tax

Tribunal nullifies assessments, deems Section 153C proceedings invalid due to seized documents not belonging to assessee.

Sri Rama Educational Trust, Visakhapatnam Versus The ACIT, Central Circle-2, Visakhapatnam And Vice-Versa

The Tribunal upheld the CIT(A)'s decision to annul assessments for all years, ruling that proceedings under Section 153C were invalid as seized documents ... Initiation of proceedings u/s.153C - Held that:- There are no incriminating materials indicating any undisclosed income of the assessee, which could have enabled the AO to invoke the provisions of section 153C of the Act. This becomes further clear from the fact that the income were determined for the assessment years 2001-02, 2002-03 & 2003-04 only on the ground that the assessee has not been approved under section 10(23C) of the Act. The determination of income has absolutely no relation or relevance to the seized materials. So far as the assessment years 2004-05 and 2005-06 are concerned, perusal of the assessment orders passed in those years would reveal the fact that the determination of income is on the basis of the impounded materials as a result of survey and not on the basis of any seized materials belonging to the assessee. In the aforesaid circumstances, the pre conditions for assuming jurisdiction under section 153C are not satisfied. So far as the decisions relied upon by ld D.R. in support of his contention, after carefully applying our mind to the ratio laid down therein, we observe that the decisions are distinguishable on facts and do not apply to the facts of the assessee’s case. In that view of the matter, we do not find any infirmity in the order of the CIT(A) in holding the initiation of proceedings under section 153C to be ab initio void and consequently annulling the assessments for all the aforesaid assessment years. Accordingly, we uphold the same by dismissing the grounds taken by the department. Issues Involved:1. Validity of initiation of proceedings under Section 153C.2. Whether the seized documents are incriminating.3. Requirement of satisfaction by the Assessing Officer (AO) under Section 153C.Detailed Analysis:1. Validity of Initiation of Proceedings under Section 153C:The primary issue was whether the CIT(A) was justified in annulling the assessment for all assessment years on the ground that the initiation of proceedings under Section 153C was incorrect due to the absence of seized materials belonging to the assessee. The assessee, a trust running a medical college, was subjected to a search and seizure operation in the premises of a third party, Sri Tangi Hari, where certain documents were seized. The AO issued notices under Section 153C based on these documents, which allegedly indicated cash payments made by the assessee. However, the CIT(A) found that the seized materials did not belong to the assessee, thus invalidating the initiation of proceedings under Section 153C. The Tribunal upheld this view, noting that the seized documents referred to by the AO did not belong to the assessee. The Tribunal emphasized that the primary condition for assuming jurisdiction under Section 153C is that the seized materials must belong to the person against whom proceedings are initiated.2. Whether the Seized Documents are Incriminating:The AO argued that the seized materials were incriminating and indicated undisclosed income of the assessee. However, the CIT(A) and the Tribunal found that the documents did not belong to the assessee and were not incriminating. The Tribunal reviewed the seized materials, including receipts and disbursement schedules related to HNR Constructions, and concluded that these documents did not pertain to the assessee. The Tribunal also noted that the AO's reliance on a letter certifying works undertaken by HNR Constructions was insufficient to establish that the documents belonged to the assessee.3. Requirement of Satisfaction by the AO under Section 153C:The department contended that the AO had recorded his satisfaction for initiating proceedings under Section 153C. However, the Tribunal found that the satisfaction recorded by the AO was based on documents that did not belong to the assessee. The Tribunal referred to various judicial decisions, including the Gujarat High Court's ruling in Vijaybhai N Chandrani, which clarified that the seized materials must belong to the person against whom proceedings are initiated. The Tribunal concluded that the preconditions for assuming jurisdiction under Section 153C were not satisfied in this case.Conclusion:The Tribunal upheld the CIT(A)'s decision to annul the assessments for all the assessment years, finding that the initiation of proceedings under Section 153C was invalid due to the absence of seized materials belonging to the assessee. The Tribunal dismissed the department's appeals and the assessee's cross objections, noting that the grounds raised had become infructuous. The order was pronounced in the open court on 13/12/2013.