2015 (1) TMI 648 - AT - Income Tax

Tribunal quashes notice & assessment order for lack of proper satisfaction

The tribunal quashed the notice issued under section 153C and the subsequent assessment order due to the lack of proper satisfaction by the Assessing ... Search and seizure operation u/s. 132 - Notice u/s. 153C - Jurisdiction of AO to issue notice u/s 153C and, assessment framed u/s 153A/143(3) - Held that:- Issue in dispute has already been adjudicated and decided in favor of the assesse by the Hon’ble Jurisdictional High Court in the case of Pepsico India Holdings (P) Ltd Vs. ACIT (2014 (8) TMI 898 - DELHI HIGH COURT). Therefore, respectfully following the said decision we are of the view that the AO does not have assumption for framing the assessment u/s. 153C read with section 153A of the I.T. Act. The AO lacks the jurisdiction to initiate the proceedings u/s. 153C against the assessee and therefore, the issuance of notice itself is null and void as well as the impugned order passed by the Ld. CIT(A) is also nullity and hence, the same is quashed as such.- Decided in favour of assessee. Issues Involved:1. Legality and jurisdiction of notice issued under section 153C and assessment order under section 143C/143(3).2. Consideration of seized material in the assessment order.3. Relevance of documents and submissions by the assessee.4. Capitalization of interest amounting to Rs. 43,83,562.5. Utilization of interest for the purchase of property.Issue-wise Detailed Analysis:1. Legality and Jurisdiction of Notice Issued Under Section 153C and Assessment Order Under Section 143C/143(3):The assessee challenged the legality and jurisdiction of the notice issued under section 153C and the subsequent assessment order. The main contention was that the Assessing Officer (AO) did not satisfy the statutory preconditions required under section 153C. The assessee argued that the satisfaction note did not indicate how the documents found during the search belonged to the assessee. The tribunal referred to the satisfaction note and found it lacking in necessary details and proper satisfaction as required by law. The tribunal cited the judgment in Pepsi Foods Pvt. Ltd. vs. ACIT, which emphasized that the AO must arrive at a clear satisfaction that the documents seized do not belong to the searched person but to another person. The tribunal concluded that the first step regarding the issuance of notice under section 153C was not fulfilled, making the notice illegal and void.2. Consideration of Seized Material in the Assessment Order:The assessee argued that the assessment order was not based on any material seized during the search operation. The tribunal noted that the AO did not mention the seized documents in the assessment order, leading to the conclusion that these documents had no relevance or belongingness to the assessee. The tribunal emphasized that the satisfaction note must display the reasons or basis for the conclusion that the seized documents belong to a person other than the searched person, which was not evident in this case.3. Relevance of Documents and Submissions by the Assessee:The assessee contended that the CIT(A) did not consider the relevant documents and submissions brought on record. The tribunal observed that the AO and CIT(A) did not properly address the relevance and belongingness of the documents to the assessee. The tribunal reiterated the necessity of the AO of the searched person to record a separate satisfaction that the documents belong to another person and have significance on the assessment of income of that person. The tribunal found that this requirement was not met in the present case.4. Capitalization of Interest Amounting to Rs. 43,83,562:The assessee argued that the interest paid on debentures amounting to Rs. 43,83,562 should have been capitalized in the cost of the hotel. The AO disallowed the capitalization of interest, and the CIT(A) upheld this decision. The tribunal did not specifically address this issue in detail as it quashed the notice under section 153C, making the subsequent assessment void.5. Utilization of Interest for the Purchase of Property:The assessee claimed that the interest paid was utilized for the purchase of property at NBCC Plaza, Pushp Vihar, New Delhi, and should have been capitalized. The tribunal did not delve into this issue in detail due to the quashing of the notice under section 153C.Conclusion:The tribunal quashed the notice issued under section 153C and the subsequent assessment order due to the lack of proper satisfaction by the AO that the seized documents belonged to the assessee. The tribunal followed the jurisdictional High Court's decision in Pepsi Foods Pvt. Ltd. vs. ACIT, emphasizing the necessity of clear satisfaction and proper recording of reasons by the AO. Consequently, the appeal filed by the assessee was allowed, and other grounds were not adjudicated as they became academic.