2014 (4) TMI 933 - AT - Income Tax

Tribunal quashes Section 153C proceedings due to lack of satisfaction note and incriminating material

Smt. Nirmala Devi Keshwani and others Versus DCIT., Central Circle Agra

The Tribunal quashed the proceedings under Section 153C for all assessees, leading to the deletion of all additions made in the assessment orders. The ... Validity of proceedings u/s 153C of the Act – Income from house property and income from capital gain – Held that:- The decision in Hardevi Keshwani Versus A. CIT, Central Circle, Agra [2013 (8) TMI 105 - ITAT AGRA] followed - No satisfaction note has been recorded in this case before initiating proceedings u/s. 153C of the IT Act - The AO did not make any addition against the assessee on the basis of any adverse material - No material is produced to prove that the AO in the case of person searched was satisfied that any money, bullion, jewellery or other valuable articles or things or books of accounts, or documents seized or requisitioned belong to or belonging to a person other than person referred to in section 153A of the IT Act - No material is produced to show if any satisfaction was recorded by the AO in that case that the seized material belongs to the assessee. The requirements of section 153C are not satisfied - May be the assessee owned up Rs.4,00,000/- cash found during the course of search and declared in assessment year 2008-09, but according to the assessee, it was regular assessment u/s. 143(3), i.e., after search was completed - the conditions of section 153C are not satisfied, thus, there is no justification to sustain the initiation of proceedings u/s 153C of the IT Act – the order of the CIT(A) set aside – Decided in favour of Assessee. Issues Involved:1. Initiation of proceedings under Section 153C of the Income Tax Act.2. Additions on merits, specifically income from house property and long-term capital gains.3. Enhancement of income.Detailed Analysis:1. Initiation of Proceedings under Section 153C of the Income Tax Act:The appeals were consolidated since the issues were identical across cases. The primary challenge was the initiation of proceedings under Section 153C of the IT Act. The assessee contended that no material was found against them during the search of other persons and no satisfaction note was recorded before initiating the proceedings under Section 153C, making the initiation illegal and bad in law. The Department failed to produce a satisfaction note as required under Section 153C.The Tribunal referenced the case of Hardevi Keshwani vs. DCIT, where it was established that for proceedings under Section 153C to be valid, there must be incriminating material found during the search and a satisfaction note recorded by the Assessing Officer (AO). The Tribunal reiterated that the absence of such a satisfaction note invalidates the proceedings under Section 153C.The Tribunal found that the AO did not make any addition based on adverse material and no satisfaction note was recorded, thus quashing the proceedings under Section 153C. This was supported by the Gujarat High Court's ruling in Vijaybhai N. Chandrani vs. ACIT, which emphasized the necessity of the seized material belonging to the person other than the one searched for initiating proceedings under Section 153C.2. Additions on Merits:The AO made additions on account of income from house property and long-term capital gains. The Tribunal noted that the determination of Annual Letting Value (ALV) was on a notional basis without any incriminating material found against the assessee. The Tribunal found that the conditions of Section 153C were not satisfied as no adverse material was found during the search, and no satisfaction note was recorded by the AO.3. Enhancement of Income:The enhancement of income was also challenged. The Tribunal quashed the proceedings under Section 153C, leading to the deletion of all additions made in the assessment orders. The Tribunal emphasized that without satisfying the conditions of Section 153C, any additions based on such proceedings are invalid.Conclusion:The Tribunal quashed the proceedings under Section 153C for all assessees, leading to the deletion of all additions made in the assessment orders. The Tribunal's decision was based on the absence of a satisfaction note and lack of incriminating material found during the search, which are prerequisites for initiating proceedings under Section 153C. The appeals were allowed in favor of the assessees.