2015 (5) TMI 545 - AT - Income Tax

Tribunal Invalidates Income Tax Proceedings; Highlights AO's Lack of Inquiry

The Tribunal invalidated the proceedings under Section 153C of the Income Tax Act due to the absence of recorded satisfaction by the Assessing Officer ... Addition during search - proceedings u/s 153A challenged - CIT(A) confirming the addition to the extent of ₹ 3.00 crores, on the basis of loose papers found during the course of search in the premises of assessee’s father - Held that:- The “satisfaction” mandated in sec. 153C was not arrived at by the assessing officer while examining/assessing the searched person. In the absence of the same, the notice u/s 153C issued to the assessee herein is bad in law, against the statutory mandate and hence the same is liable to be quashed. Consequently, the impugned appellate and assessment order also are liable to be quashed. A perusal of the document found during search would show that the assessee Shri Deven Mehta has no where stated that the advance payment of ₹ 3.00 crores was made by him out of his own funds. On the contrary, it states that a cheque amount for ₹ 1.00 crore is in the name of Shri Jitendra Mehta. Thus, it only talks about a property transaction only. Further, we notice that the assessing officer did not conduct any enquiry with the person named Pritibhabhi, the owners of the property or Jitendra Mehta to ascertain about the veracity of the document and further to establish that the advance payment of ₹ 3.00 crores stated therein was paid by the assessee out of his own funds. On the contrary, the assessing officer admitted in the remand report dated 20-02-2014 that the said property does not stand in the name of the assessee, i.e., even after the expiry of about five years from the present assessment year, thus supporting the contention of the assessee that the above said property transaction did not fructify. Thus, we are of the view that the assessing officer has made the impugned addition by simply placing reliance on the document without making any further enquiry to authenticate the same, which is not justified. - Decided in favour of assessee. Issues Involved:1. Validity of proceedings under Section 153C of the Income Tax Act.2. Merits of the addition of Rs. 3 crores as undisclosed income.Detailed Analysis:1. Validity of Proceedings under Section 153C of the Income Tax Act:The primary issue raised by the assessee was the validity of the proceedings initiated under Section 153C of the Income Tax Act. The assessee contended that the Assessing Officer (AO) of the searched person (the father of the assessee) did not record the required satisfaction that the seized document belonged to the assessee.The Revenue conducted a search and seizure operation on M/s ARSS Infrastructure Projects Limited and associated entities, including the assessee's father. During the search, a loose paper related to the assessee was seized from the father's premises, leading to proceedings under Section 153C against the assessee.The AO initiated the proceedings on the basis of a letter found, which mentioned an advance payment of Rs. 3 crores for a property transaction. The assessee argued that the AO of the searched person must record satisfaction that the document belongs to another person, as mandated by Section 153C. This satisfaction was not recorded in the file of the searched person but was noted in the assessee's file, which the assessee claimed invalidated the proceedings.The Department argued that since the AO for both the searched person and the assessee was the same, there was no need for separate satisfaction. However, the Tribunal held that the satisfaction should be recorded while assessing the income of the searched person, as per the statutory mandate. The absence of such satisfaction rendered the proceedings under Section 153C invalid. The Tribunal referred to the case of Pepsi Foods P Ltd Vs. ACIT, which emphasized that the AO must arrive at a clear satisfaction that the document belongs to another person before issuing a notice under Section 153C.2. Merits of the Addition of Rs. 3 Crores as Undisclosed Income:On the merits, the Tribunal examined the document in question, which was a letter addressed by the assessee to Mrs. Priti regarding a property purchase. The letter mentioned an advance payment of Rs. 3 crores. The assessee contended that the property transaction did not fructify, and the payment was not made from his funds.The AO added Rs. 20.22 crores as undisclosed income, which was later restricted to Rs. 3 crores by the CIT(A), based on the advance payment mentioned in the letter. The Tribunal noted that the AO did not conduct any further inquiries to verify the authenticity of the document or the source of the Rs. 3 crores. The Tribunal observed that the document did not explicitly state that the Rs. 3 crores were paid by the assessee from his own funds.Additionally, the Tribunal found that the AO admitted in the remand report that the property was still in the name of the original owner, supporting the assessee's claim that the transaction did not materialize. The Tribunal concluded that the AO's reliance on the document without further verification was unjustified, and the addition of Rs. 3 crores was not warranted.Conclusion:The Tribunal quashed the proceedings under Section 153C due to the lack of recorded satisfaction by the AO of the searched person, as required by law. On the merits, the Tribunal found that the addition of Rs. 3 crores as undisclosed income was not substantiated by adequate evidence or inquiry, and therefore, the appeal filed by the assessee was allowed. The order was pronounced in the open court on 24th April 2015.