2010 (2) TMI 949 - AT - Income Tax

Tribunal overturns assessments under section 153C of Income-tax Act for lack of satisfaction

The Tribunal set aside all assessments made under section 153C of the Income-tax Act, 1961, as the Assessing Officer lacked the necessary satisfaction ... Assessment - Search and seizure - there was a search at the group premises as noted by the Assessing Officer – Held that:- When the search was conducted at the premises of Shri Subhash Gambhir, no amount of money, bullion, jewellery or other valuable article or thing or books of account or documents seized belonged to the present assessee - No such valuable article or thing or any books of account or documents have been referred even in the assessment order for framing assessment under section 153C of the Income-tax Act, 1961. Since for all these years, the returns were originally filed and processed and since no additional material is found pertaining to the assessee which is held to be belonging to the assessee, the Assessing Officer does not assume jurisdiction for framing assessment under section 153C read with section 153A of the Income-tax Act, 1961 Issues Involved:1. Validity of assessment framed under section 153C of the Income-tax Act, 1961.2. Satisfaction of the Assessing Officer under section 153C.3. Jurisdiction of the Assessing Officer to frame assessment under section 153C.4. Abatement of original assessments and the scope of reassessment.5. Recalculation of deductions under sections 80HHC and 80-IA of the Income-tax Act.Issue-Wise Detailed Analysis:1. Validity of Assessment Framed Under Section 153C of the Income-tax Act, 1961:The assessee challenged the validity of the assessment framed under section 153C, arguing that no valuable articles, books of account, or documents revealing undisclosed income were found or seized during the search at the premises of Shri Subhash Gambhir or during the survey at the assessee's premises. The Tribunal noted that for invoking section 153C, the Assessing Officer must have satisfaction that any money, bullion, jewellery, or other valuable articles or books of account seized belong to a person other than the one searched under section 132. The Tribunal concluded that the Assessing Officer did not have the requisite satisfaction, and no material belonging to the assessee was found during the search.2. Satisfaction of the Assessing Officer Under Section 153C:The Tribunal emphasized that the satisfaction of the Assessing Officer is not a mere formality but should be a positive satisfaction that the seized material pertains to the other person and reveals undisclosed income of that other person. The Tribunal referred to the case of Meghmani Organics Ltd. v. Dy. CIT, where it was held that documents maintained by a third party for their own purposes cannot be considered as belonging to the assessee. The Tribunal found that the documents seized during the search did not belong to the assessee and did not reveal any specific undisclosed income.3. Jurisdiction of the Assessing Officer to Frame Assessment Under Section 153C:The Tribunal noted that the Assessing Officer assumes jurisdiction under section 153C only if the seized documents belong to a person other than the one searched. In the present case, no such documents were found to belong to the assessee. The Tribunal also referred to the Central Board of Direct Taxes Circular No. 7 of 2003, which clarifies that pending appeals, revisions, or rectifications do not abate, and only pending assessments or reassessments abate. Since the original assessments were not pending, the Assessing Officer was not competent to assume jurisdiction under section 153C.4. Abatement of Original Assessments and the Scope of Reassessment:The Tribunal highlighted that the original assessments were completed before the initiation of action under section 153C, and the issues raised in the reassessment were already subject to litigation in the original assessments. The Tribunal referred to the decision in the case of LMJ International Ltd., which held that where no incriminating material is found during the search, the assessments for such years cannot be disturbed. The Tribunal concluded that since the original assessments were not pending and had not abated, the Assessing Officer could not reopen the assessments under section 153C.5. Recalculation of Deductions Under Sections 80HHC and 80-IA of the Income-tax Act:The Tribunal noted that the deductions under sections 80HHC and 80-IA were recalculated on various grounds, including the inclusion of excise duty and sales tax in total turnover, ignoring loss from export trade, and eligibility of deduction under section 80HHC. These issues were already subject to earlier proceedings and were in further litigation before the Commissioner of Income-tax (Appeals) and the Tribunal. The Tribunal concluded that the Assessing Officer could not have recalculated these deductions since the original assessments had not abated and were pending in appeals.Conclusion:The Tribunal set aside all the assessments made under section 153C of the Income-tax Act, 1961, as the Assessing Officer did not have the requisite satisfaction that the seized material belonged to the assessee, and the original assessments had not abated. The Tribunal dismissed all the appeals of the Revenue and allowed all the cross-objections filed by the assessee.