2017 (10) TMI 59 - AT - Income Tax

ITAT Partially Allows Revenue's Appeals on Income Assessment, Emphasizes Compliance & Fair Hearing

ACIT Central Circle-30, New Delhi Versus Archon Estate Pvt. Ltd.

The ITAT partly allowed the Revenue's appeals, emphasizing proper recording of satisfaction notes and compliance with legal requirements in assessing ... Jurisdiction assumed u/s 153C - proof of satisfaction recorded by AO issuing notice u/s 153C - Held that:- The satisfaction recorded by the Officer issuing notice u/s 153C is sufficient if the Assessing Officer of the search person and third party are the same. But in the present case the same was not looked into by the CIT(A). Therefore, the order of the CIT(A) is set aside and remanded back to the file of the CIT(A) for a fresh adjudication. Needless to say, the assessee be given proper opportunity of hearing following principles of natural justice. Issues involved:1. Jurisdiction assumed under section 153C in the case of the assessee.2. Proper recording of satisfaction note for initiation of proceedings under section 153C.3. Compliance with legal requirements in assessing unexplained share capital and rental income.Detailed Analysis:Issue 1: Jurisdiction assumed under section 153CThe appeals were filed by the Revenue challenging the order passed by CIT(A) against the jurisdiction assumed under section 153C in the case of the assessee. The search and seizure operation under section 132 was conducted, and documents belonging to the assessee were found during the search of a group company. The Assessing Officer issued notices under sections 153C and 143(2) to the assessee. The CIT(A) held that the jurisdiction assumed under section 153C was not in accordance with law, citing the case of DSL Properties Pvt. Ltd. The CIT(A) partly allowed the assessee's appeal based on this reasoning.Issue 2: Proper recording of satisfaction noteThe CIT(A) noted that the satisfaction note under section 153C was recorded in the assessee's file instead of the file of the person searched. This discrepancy led the CIT(A) to conclude that the jurisdiction assumed under section 153C was not proper. The Revenue contended that the satisfaction recorded by the Assessing Officer issuing the notice under section 153C was sufficient, especially if the Assessing Officer for the search party and the third party are the same. The ITAT directed the CIT(A) to consider the ITAT decision in the case of DSL Properties Pvt. Ltd. and remanded the case for fresh adjudication.Issue 3: Compliance with legal requirementsRegarding the assessment of unexplained share capital and rental income, the Assessing Officer scrutinized the documents and confirmations provided by the assessee. The Assessing Officer observed that the assessee had fulfilled the requirements of Section 68 of the Income Tax Act regarding the share capital. However, the rental income earned by the assessee from a property used as a Secretarial Office was treated as taxable income. The ITAT's decision focused on the procedural aspects of jurisdiction under section 153C, setting aside the CIT(A)'s order for reassessment.In conclusion, the ITAT partly allowed the Revenue's appeals for statistical purposes, emphasizing the importance of proper recording of satisfaction notes and compliance with legal requirements in assessing income. The case was remanded back to the CIT(A) for fresh adjudication, ensuring the assessee's right to a fair hearing.