2017 (9) TMI 1898 - AT - Income Tax

Tribunal nullifies orders under sections 263 and 153C, emphasizes legal procedures and natural justice in tax assessments.

Vision Promoters And Builders (P) Ltd. Versus Commissioner Of Income Tax, (Central), Gurgaon And DCIT Versus Vision Promoters And Builders (P) Ltd.

The Tribunal declared the order passed under section 263 and the assessment order under section 153C as null and void. The Revenue's appeal was dismissed, ... Revision u/s 263 - whether the legality or validly to the original order passed u/s 153C can be challenged by the assessee in this appeal contesting the exercise of revision jurisdiction u/s 263? - HELD THAT:- As now settled proposition of law that in a case where the AO of the searched person as well as that other person, in case of whom the assessment u/s 153C is contemplated, is one and the same the satisfaction would have to be recorded separately qua the searched person. Even assuming that no handing over of documents is required, recording of satisfaction is a must, as, that is the foundation, upon which subsequent proceedings against other person are initiated. The handing over of documents etc. in such a case may or may not be of much relevance but the recording of satisfaction is still required and in fact is mandatory. As been categorically held so in the CBDT circular No. 24/2015 (supra). Even the CBDT has directed the concerned officers that pending litigation with regard to recording of satisfaction note u/s 158BD/under section 153C should be withdrawn/not pressed, if it does not meet the guidelines laid down by the Apex Court. The circular of the Board, though is not binding on this Tribunal but same is binding on the department. In view of the CBDT Circular No. 24 of 2015 we have no hesitation to hold that because of the legal proposition laid down by the various courts and in the light of CBDT circular, the very assuming of jurisdiction and initiation of assessment proceedings in the case of the assessee under section 153C of the Act was bad in law and subsequent assessment order passed u/s 153C is null and void and is to be treated as nonest in the eyes of law. Since the base order passed u/s 153C of the Act has been held to be null and void, the subsequent revision order passed by the CIT u/s 263 of the Act is also accordingly held to be void. The assessee therefore, succeeds on the legal issue. - Decided in favour of assessee. Issues Involved:1. Validity of the order passed under section 263 of the Income Tax Act.2. Validity of the assessment order passed under section 153C of the Income Tax Act.3. Directions for additions on account of capital gains and deemed dividend.4. Violation of principles of natural justice.Detailed Analysis:1. Validity of the order passed under section 263 of the Income Tax Act:The assessee contested the validity of the order passed under section 263 of the Act by the CIT. The primary argument was that the CIT invoked revision jurisdiction under section 263 without proper jurisdiction, as the original assessment under section 153C was itself invalid. The Tribunal noted that the CIT directed the Assessing Officer to make certain additions on account of capital gains and deemed dividend, which were not initially included. The Tribunal found that the CIT's order was void because the original assessment under section 153C was invalid, rendering any subsequent orders based on it also null and void.2. Validity of the assessment order passed under section 153C of the Income Tax Act:The Tribunal examined whether the Assessing Officer had validly assumed jurisdiction under section 153C. It was found that no separate satisfaction note was recorded in the case of the searched person, M/s S.L Arora Group, to indicate that the seized documents belonged to the assessee. The Tribunal relied on the Supreme Court's decision in Commissioner Of Income Tax-Iii v. Calcutta Knitwears, Ludhiana, which mandates that a satisfaction note must be recorded by the Assessing Officer of the searched person before initiating proceedings under section 153C. The Tribunal also referred to CBDT Circular No. 24/2015, which reiterated the necessity of recording a satisfaction note. Consequently, the Tribunal held that the initiation of assessment proceedings under section 153C was invalid, making the assessment order null and void.3. Directions for additions on account of capital gains and deemed dividend:Since the Tribunal found the original assessment under section 153C to be invalid, any directions given by the CIT for making additions on account of capital gains and deemed dividend were also considered void. The Tribunal emphasized that any subsequent order modifying or directing a fresh order under section 153C, based on an invalid initial order, would also be null and void.4. Violation of principles of natural justice:The assessee argued that no opportunity of hearing was provided during the fresh assessment, violating principles of natural justice. The CIT(Appeals) observed that the Assessing Officer did not issue any notice to the assessee while framing the fresh assessment, which was against the law. The Tribunal upheld this observation, noting that the principles of natural justice were indeed violated, further supporting the decision to quash the assessment order.Conclusion:The Tribunal allowed the assessee's appeal, declaring the order passed under section 263 and the assessment order under section 153C as null and void. Consequently, the Revenue's appeal was dismissed as infructuous. The judgment emphasized the importance of adhering to legal procedures and the principles of natural justice in tax assessments.