2022 (9) TMI 1486 - AT - Income Tax

Tribunal rules in favor of assessee, dismisses revenue's appeals on lack of incriminating material

The Tribunal allowed the assessee's appeals for the assessment years 2012-13, 2013-14, and 2014-15, and dismissed the revenue's appeals for the assessment ... Assessment u/s 153A - Unexplained credit u/s 68 - undisclosed income of the assessee - HELD THAT:- To move into motion section 153C of the Act something belonging to the assessee must be found in the premises of searched person and at the same time “incriminating material” should be qua the each assessment year. Hon’ble Supreme Court while deciding the scope of section 153C in case of Sinhgad Technical Education Society (2017 (8) TMI 1298 - SUPREME COURT) held that incriminating material which was seized had to be pertained to the assessment year in question and this is the basic requirement u/s 153C which is essential for the assessment under that provision which becomes a jurisdictional issue. In the instant case also no “incriminating material” is there qua the years under consideration. Even in the bank statement available name of the assessee is not there and as such very initiation of the assessment proceedings u/s 153C of the Act is not sustainable in the eyes of law. Thus as very initiation of assessment made under section 143(3) read with section 153C of the Act has not withstood the judicial scrutiny on account of jurisdictional defect there is no need to go into the merits qua the addition/deletion made by AO/ Ld. CIT(A). Decided in favour of assessee. Issues Involved:1. Validity of assessments under Section 153C of the Income Tax Act, 1961.2. Jurisdiction of the assessing officer and procedural lapses.3. Requirement of incriminating material for assessments under Section 153C.4. Additions made under Section 68 for unexplained credits.5. Disallowance of exemptions under Section 10(38) for long-term capital gains.6. Additions on account of commission income.7. Procedural fairness and natural justice.Issue-wise Detailed Analysis:1. Validity of Assessments under Section 153C:The Tribunal examined whether the assessments made under Section 153C were valid. It was noted that the assessments were initiated based on a search and seizure operation at M/s. Navjivan Charitable Trust. The Tribunal found that no incriminating material pertaining to the assessee was found during the search. The ledger accounts and bank statements seized were related to the year 2009-10, not the subsequent years under appeal. The Tribunal emphasized that for Section 153C to apply, there must be incriminating material for each assessment year in question. The Tribunal referenced the Supreme Court's decision in Sinhgad Technical Education Society, which highlighted the necessity of incriminating material for each specific year. Consequently, the Tribunal ruled that the assessments under Section 153C were not sustainable due to the lack of incriminating material for the relevant years.2. Jurisdiction of the Assessing Officer and Procedural Lapses:The assessee challenged the jurisdiction of the assessing officer, arguing that no opportunity of being heard under Section 127 was granted, and the satisfaction note was not furnished. However, these grounds were not pressed during the hearing and were subsequently dismissed by the Tribunal.3. Requirement of Incriminating Material:The Tribunal reiterated that incriminating material is essential for invoking Section 153C. The Tribunal found that the assessments were based on the statement of the assessee recorded during the search and the ledger of M/s. Navjivan Charitable Trust, which did not pertain to the years under appeal. The Tribunal concluded that the absence of incriminating material for the relevant years rendered the assessments invalid.4. Additions Made Under Section 68 for Unexplained Credits:The Tribunal addressed the additions made under Section 68 for unexplained credits. The assessing officer had treated the total deposits in the assessee's bank accounts as undisclosed income. However, the Tribunal noted that these additions were not based on any incriminating material found during the search. The Tribunal cited its earlier decision in the assessee's case for previous years, where similar additions were deleted due to the lack of incriminating material. Consequently, the Tribunal deleted the additions made under Section 68.5. Disallowance of Exemptions Under Section 10(38) for Long-Term Capital Gains:The assessee contested the disallowance of exemptions claimed under Section 10(38) for long-term capital gains on the sale of shares. The Tribunal did not address this issue on merits, as the primary ground of invalidity of the assessments under Section 153C was upheld, rendering the disallowance academic.6. Additions on Account of Commission Income:The assessee also challenged the additions made on account of commission income. The Tribunal observed that the assessing officer had made these additions without any incriminating material. The Tribunal referred to its earlier decision in the assessee's case, where similar additions were deleted due to the absence of incriminating material. Therefore, the Tribunal deleted the additions on account of commission income.7. Procedural Fairness and Natural Justice:The assessee argued that the assessments were made without granting a copy of the statement recorded on 14.01.2015, violating the principles of natural justice. However, this ground was not pressed during the hearing and was dismissed by the Tribunal.Conclusion:The Tribunal allowed the assessee's appeals for the assessment years 2012-13, 2013-14, and 2014-15, and dismissed the revenue's appeals for the assessment years 2013-14 and 2014-15. The Tribunal's decision was primarily based on the invalidity of the assessments under Section 153C due to the lack of incriminating material for the relevant years. The Tribunal emphasized the necessity of incriminating material for each assessment year and referenced judicial precedents to support its findings. The Tribunal's order was pronounced in the open court on 20.09.2022.