2018 (2) TMI 434 - AT - Income Tax

Tribunal Validates Income Tax Proceedings, Dismisses Revenue Appeals, and Directs Re-examination

DCIT, Central Circle-21, New Delhi Versus M/s. Sanchit Consultants Pvt. Ltd., (formerly known as D. Base Consultants Pvt. Ltd.) And Vice-Versa

DCIT, Central Circle-21, New Delhi Versus M/s. Sanchit Consultants Pvt. Ltd., (formerly known as D. Base Consultants Pvt. Ltd.) And Vice-Versa - TMI Issues Involved:1. Validity of proceedings under Section 153C of the Income Tax Act.2. Deletion of addition on account of unexplained purchases under Section 69C.3. Deletion of addition on account of disallowance of expenditure.4. Limitation period for assessment under Section 153C.5. Jurisdiction of the Assessing Officer (AO) in initiating proceedings.6. Verification of transactions reflected in seized documents.Detailed Analysis:1. Validity of Proceedings under Section 153C:The assessee challenged the validity of the proceedings under Section 153C, arguing that no satisfaction was recorded by the AO of the searched person. The tribunal noted that the satisfaction note was recorded by the AO who was also the jurisdictional AO of the searched person. The tribunal referred to the judgment of the Hon’ble Delhi High Court in *Pr. CIT vs. Instronics Ltd.*, which upheld the validity of such satisfaction notes. Consequently, the tribunal found no merit in the assessee's contention and upheld the validity of the proceedings under Section 153C.2. Deletion of Addition on Account of Unexplained Purchases under Section 69C:The AO had disallowed cash purchases amounting to Rs. 32,91,900 as unverifiable and bogus, treating them as unaccounted expenditure under Section 69C. The CIT(A) deleted this addition, directing the AO to work out the peak from the entries in the cash book. The tribunal, following the precedent set in the case of *DCIT vs. M/s. Devi Dayal Petrochemicals Pvt. Ltd.*, remitted the issue back to the AO for re-examination, directing the AO to verify whether the transactions were duly accounted for in the books of accounts.3. Deletion of Addition on Account of Disallowance of Expenditure:The AO had disallowed 100% of the expenses claimed by the assessee in the profit and loss account as unverifiable. The CIT(A) deleted this addition as well. The tribunal, consistent with its decision on unexplained purchases, remitted this issue back to the AO for fresh examination, following the same directions as for unexplained purchases.4. Limitation Period for Assessment under Section 153C:The assessee contended that the assessments for AYs 2003-04 and 2004-05 were barred by limitation. The tribunal referred to the decision of the Hon’ble Delhi High Court in *CIT vs. RRJ Securities Ltd.*, which held that the six assessment years for which assessments could be made under Section 153C should be reckoned from the date of recording of satisfaction. Since the satisfaction was recorded in September 2010, the tribunal concluded that AYs 2003-04 and 2004-05 were beyond the six-year period and thus, the assessments for these years were void ab initio.5. Jurisdiction of the Assessing Officer:The tribunal examined the jurisdictional issue and found that the AO had the requisite jurisdiction to initiate proceedings under Section 153C, as the satisfaction note was recorded by the AO of the searched person, who was also the AO of the assessee.6. Verification of Transactions Reflected in Seized Documents:The tribunal directed the AO to verify whether the transactions reflected in the seized documents were duly accounted for in the books of accounts. If the transactions were accounted for, the AO was instructed to drop the proceedings. If not, the AO was to continue with the assessment as per law.Conclusion:The tribunal dismissed the appeals of the Revenue for AYs 2003-04 and 2004-05 and allowed the cross objections of the assessee for these years. For the remaining assessment years (2005-06 to 2008-09), the tribunal remitted the issues back to the AO for fresh examination, directing the AO to verify the transactions in light of the directions provided. The tribunal's order emphasized adherence to the principles laid down in previous judicial decisions and statutory provisions.