2016 (5) TMI 1127 - AT - Income Tax

Proceedings under Income Tax Act quashed for lack of recorded satisfaction. Assessments under sections 23(4) and 69A deleted.

Smt. Hardevi Keshwani Versus The DCIT, Agra

The Tribunal quashed the proceedings under section 153C of the Income Tax Act due to the absence of recorded satisfaction by the Assessing Officer of the ... Validity of assessment under section 153C - addition made under section 69A on account of unexplained gift received by the assessee - Held that:- In the absence of the recording of satisfaction by the AO of the searched person before initiating proceedings against third person u/s 153C, the condition of section 153C has not been satisfied in the present case and there is no jurisdiction to sustain the proceeding under section 153C initiated by the authorities below against the assessee. The order passed under section 153C is therefore set aside and the proceedings under section 153 C are directed to be quashed. Therefore all the additions made in the assessment order also stands deleted. - Decided in favour of assessee Issues Involved:1. Validity of proceedings under section 153C of the Income Tax Act.2. Additions made on account of determination of annual letting value under section 23(4) of the Act.3. Additions made under section 69A of the Act on account of unexplained gifts.Detailed Analysis:1. Validity of Proceedings under Section 153C:The assessee challenged the initiation of proceedings under section 153C on the grounds that no incriminating material relating to the assessment year was found during the search. The assessee argued that no satisfaction had been recorded by the Assessing Officer (AO) before initiating the proceedings, which is a prerequisite under section 153C. The Ld. CIT(A) rejected this contention, stating that the AO was satisfied and legally bound to proceed against the assessee. However, the Tribunal found that the recording of satisfaction by the AO of the searched person is a sine qua non for commencing any proceeding under section 153C. The Tribunal cited the jurisdictional High Court's decision in CIT Vs. Gopi Apartments, which held that the satisfaction must be recorded in writing. The Tribunal also referred to a CBDT circular confirming that recording of satisfaction is mandatory even if the AO of the searched person and the other person are the same. The Tribunal concluded that in the absence of recorded satisfaction, the proceedings under section 153C were invalid and quashed the same.2. Additions on Account of Determination of Annual Letting Value under Section 23(4):The assessee contested the addition of Rs. 77,433 made on account of the determination of annual letting value under section 23(4) for both assessment years. The Tribunal noted that the AO had made this addition based on a notional basis without any incriminating material found during the search. Since the proceedings under section 153C were quashed, all additions made in the assessment orders, including those under section 23(4), were also deleted.3. Additions under Section 69A on Account of Unexplained Gifts:The assessee also challenged the additions of Rs. 1,00,000 and Rs. 4,98,551 made under section 69A for the assessment years 2002-03 and 2003-04, respectively, on account of unexplained gifts. The Tribunal found that these additions were made without any incriminating material found during the search. Given that the proceedings under section 153C were quashed, all related additions under section 69A were also deleted.Conclusion:The Tribunal allowed the appeal of the assessee, quashing the proceedings under section 153C due to the absence of recorded satisfaction by the AO of the searched person. Consequently, all additions made in the assessment orders under sections 23(4) and 69A were also deleted. The Tribunal's decision emphasized the mandatory requirement of recording satisfaction in writing before initiating proceedings under section 153C, aligning with the jurisdictional High Court's rulings and CBDT guidelines.