2013 (8) TMI 105 - AT - Income Tax

Invalid initiation of proceedings under Section 153C & unjustified addition under Section 23(4)

The tribunal found the initiation of proceedings under Section 153C of the Income Tax Act to be invalid as no formal satisfaction note was recorded by the ... Initiation of proceedings u/s. 153C as no paper, document or any adverse material relating to assessment years were found during the search - additions on account of determination of Annual Letting Value u/s. 23(4) of the properties at 7% of investments - Held that:- No material is produced to prove that the AO in the case of person searched was satisfied that any money, bullion, jwellery or other valuable articles or things or books accounts or documents seized or requisitioned belongs to or belong to a person other than the person referred to in sec. 153A. No material is produced to show if any satisfaction was recorded by the AO in that case that the seized material belongs to any person other than the person with respect to whom search was made u/s 132. DR did not produce any material to show if any such satisfaction as required u/s 153C was recorded by the AO in the case of person searched. No material is produced to show that books accounts or documents or assets seized had been handed over to the AO having jurisdiction over such other person. In the absence of any adequate material produced by DR, the contention of assessee was justified that in this case, the AO has not recorded any satisfaction that any seized document or material belongs to any person other than the person searched - therefore no infirmity in the order of the CIT(A) in quashing the proceedings u/s 153C. The AO did not make any addition against the assessee on the basis of any adverse material. The AO passed the assessment order u/s. 153C making addition on account of determination of Annual Letting Value u/s. 23(4) of the property at 7% of investments only on notional basis and for that, no incriminating material was found against the assessee. Therefore, all the additions made in the assessment orders u/s. 153C would stand deleted. In favour of assessee. Issues Involved:1. Initiation and validity of proceedings under Section 153C of the Income Tax Act.2. Addition of Rs. 77,433 on account of determination of Annual Letting Value under Section 23(4) of the Income Tax Act.Issue-wise Detailed Analysis:1. Initiation and Validity of Proceedings under Section 153C of the Income Tax Act:The assessee challenged the initiation of proceedings under Section 153C of the Income Tax Act, arguing that no paper, document, or adverse material relating to the assessment years was found during the search. The search was conducted on the Shanker Gutka group, and the proceedings under Section 153C read with Section 153A were initiated based on the material available on record. The assessee contended that no action under Section 132 of the IT Act was taken against them, and no adverse or incriminating material was found during the search of her husband, father-in-law, and brother-in-law. The assessee argued that the satisfaction required for initiating proceedings under Section 153C was neither mentioned in the assessment order nor supplied to the assessee, making the notice under Section 153C invalid.The tribunal noted that no formal satisfaction note was recorded by the Assessing Officer (AO) before initiating proceedings under Section 153C. The tribunal referenced the ITAT Agra Bench's decision in the case of ACIT Circle I, Gwalior vs. M/s. Global Estate, which stated that the AO must record satisfaction that any money, bullion, jewelry, or other valuable articles or things or books of account or documents seized belong to a person other than the person referred to in Section 153A. In this case, no such satisfaction was recorded, and no material was produced to show that the seized documents belonged to the assessee. Consequently, the tribunal found the initiation of proceedings under Section 153C to be invalid and quashed the assessment orders.2. Addition of Rs. 77,433 on Account of Determination of Annual Letting Value under Section 23(4) of the Income Tax Act:The assessee also challenged the addition of Rs. 77,433 on account of the determination of Annual Letting Value (ALV) under Section 23(4) of the IT Act. The AO determined the ALV of the property at 7% of the investments, which was contested by the assessee. The tribunal noted that the determination of ALV was only on a notional basis and not based on any incriminating material found against the assessee during the search. The tribunal found that the AO did not refer to any seized documents or material in the assessment orders that could justify the addition. Therefore, the conditions of Section 153C were not satisfied in this case.The tribunal concluded that the proceedings under Section 153C were not justified and quashed the orders of the authorities below. Consequently, all additions made in the assessment orders under Section 153C, including the addition of Rs. 77,433 on account of determination of ALV, were deleted.Conclusion:The tribunal allowed all the appeals of the assessee, quashing the proceedings under Section 153C of the Income Tax Act and deleting all additions made in the assessment orders. The order was pronounced in the open court.