2019 (7) TMI 530 - AT - Income Tax

Revenue's Appeals Dismissed: Section 153C Proceedings Invalid

The Tribunal dismissed the Revenue's appeals for the assessment years in question as the initiation of proceedings under section 153C was deemed invalid ... Assessment u/s 153C - proof of incriminating material found in search - HELD THAT:- This proposition laid down by the Hon’ble jurisdictional High Court in the case of IBC Knowledge Park P. Ltd. [2016 (5) TMI 372 - KARNATAKA HIGH COURT] is impliedly approved by the Hon’ble Apex Court in the case of CIT Vs. Sinhgad Technical Educaiton Society [2017 (8) TMI 1298 - SUPREME COURT] as the Hon’ble Apex Court took the view that proceedings under section 153C of the Act can be initiated only in respect of those Assessment Years for which there is incriminating seized material which prima facie represent undisclosed income. Revenue put forth the proposition that the learned CIT(A) ought to have sustained even those additions based on material, not relied upon to invoke proceedings u/s 153C and that the CIT(A) ought to have exercised his co-terminus powers to do so. After due consideration thereof, we are unable to concur with this proposition; in as much as the CIT(A) could not have proceeded further in sustaining those additions for the reasons that the invoking of the provisions of section 153C in the case on hand has no legs to stand on and the entire proceedings is void-ab-initio. In this view of the matter, we are of the opinion that the CIT(A) has rightly cancelled the orders of assessment for Assessment Years 2008-09, 2011-12 and 2012-13. Consequently, ground Nos. 1 and 2 of Revenue’s appeals for Assessment Years 2008-09, 2011-12 and 2012-13 are dismissed. Initiation of proceedings as barred by limitation in view of the proviso to section 153C - HELD THAT:- We are inclined to concur with the argument put forth by the assessee that in the event the initiation of proceedings under section 153C is found to be in order, the year of search in the case on hand is to be reckoned as Assessment Year 2015-16 as the satisfaction to initiate proceedings under section 153C of the Act was arrived on 15.09.2014 and the six Assessment Years immediately preceding the same would commence from Assessment Year 2009-10 and end with Assessment Year 2014-15. In these circumstances, Assessment Year 2008-09 is outside the ambit of section 153C of the Act in the case on hand. - CIT(A) was correct in deciding this ground in favour of the assessee. Initiation of proceedings under section 153C of the Act in the case on hand, for Assessment Years 2008-09, 2011-12 and 2012-13, is bad in law, thereby rendering the assessment proceedings for the impugned Assessment Years void-ab-initio; we refrain from deciding on the other grounds raised by Revenue on merits for these years as they are rendered academic in nature. Issues Involved:1. Validity of assumption of jurisdiction under section 153C of the Income Tax Act.2. Requirement of incriminating material for initiating proceedings under section 153C.3. Validity of digital evidence.4. Deletion of additions by CIT(A) based on protective assessments and unexplained investments.Issue-wise Detailed Analysis:1. Validity of assumption of jurisdiction under section 153C:- The Revenue argued that the CIT(A) erred in relying on the Karnataka High Court's decision in IBC Knowledge Park Pvt. Ltd. because the assessee participated in the proceedings without challenging the notices, referencing the Delhi High Court's decision in CIT Vs. Safetag International Pvt. Ltd. and the Apex Court's decision in CIT Vs. Vijaybhai N Chandrani.- The Tribunal held that the Hon'ble Apex Court in CIT Vs. Sinhgad Education Society allowed the assessee to raise the issue of jurisdiction during appellate proceedings, even if not objected to during assessment proceedings. Therefore, the ground raised by the Revenue was dismissed.2. Requirement of incriminating material for initiating proceedings under section 153C:- The Revenue contended that the satisfaction recorded by the AO need not be based on incriminating material, referencing the Delhi High Court's decision in SSP Aviation Ltd. Vs. DCIT.- The Tribunal noted that the Karnataka High Court in IBC Knowledge Park Pvt. Ltd. held that the detection of seized material leading to an inference of undisclosed income is necessary for invoking section 153C. This view was impliedly approved by the Apex Court in Sinhgad Technical Education Society, which stated that proceedings under section 153C can only be initiated for assessment years where incriminating material indicating undisclosed income is found.- The Tribunal concluded that the CIT(A) rightly canceled the assessments as the materials relied upon to invoke section 153C were not incriminating and did not result in any additions. Therefore, the ground raised by the Revenue was dismissed.3. Validity of digital evidence:- The Revenue argued that the CIT(A) erred in accepting the ground of validity of digital evidence based on the VC Shukla case, which was overridden by the Information Technology Act 2000 and sections 2(22AA) and 292C of the Income Tax Act.- The Tribunal did not specifically address this issue, as the primary grounds for dismissing the appeals were based on the invalidity of the assumption of jurisdiction and the requirement of incriminating material.4. Deletion of additions by CIT(A) based on protective assessments and unexplained investments:- The Revenue contended that the CIT(A) erred in deleting additions based on protective assessments and unexplained investments, referencing the Gujarat High Court's decision that protective assessments should not be decided until substantive assessments reach finality.- The Tribunal did not address these grounds on merits, as the assessments were rendered void-ab-initio due to the invalid initiation of proceedings under section 153C.Conclusion:The Tribunal dismissed the Revenue's appeals for the assessment years 2008-09, 2011-12, and 2012-13 for Smt. Pallavi Ravi and the assessment years 2008-09 to 2012-13 for Shri. C. T. Ravi, as the initiation of proceedings under section 153C was found to be invalid and void-ab-initio. The Tribunal upheld the CIT(A)'s orders, which canceled the assessments due to the lack of incriminating material and the invalid assumption of jurisdiction.