2019 (7) TMI 930 - AT - Income Tax

Invalid Assessment Proceedings under Section 153C; Natural Justice Emphasized; Set-off Allowed

M/s. Orchid Infrastructure Developers Private Limited Versus ACIT, Central Circle-II And DCIT, Central Circle-II, New Delhi And Vice-Versa

M/s. Orchid Infrastructure Developers Private Limited Versus ACIT, Central Circle-II And DCIT, Central Circle-II, New Delhi And Vice-Versa - TMI Issues Involved:1. Validity of assessment proceedings under section 153C.2. Jurisdiction of the assessing officer.3. Legality of additions based on seized documents.4. Cross-examination and natural justice principles.5. Incriminating evidence and its relevance to the assessee.6. Set-off against disclosed income.Issue-wise Detailed Analysis:1. Validity of Assessment Proceedings under Section 153C:The assessee challenged the validity of the assessment proceedings initiated under section 153C, arguing that the documents seized during the searches did not 'belong to' the assessee. The Tribunal noted that the documents seized from Mr. Moti S. Masand and Mr. Aman Sharma did not mention the assessee's name. The Tribunal relied on the Delhi High Court's decision, which mandates that the documents should belong to the assessee for section 153C to apply. Consequently, the Tribunal held that the assumption of jurisdiction under section 153C was invalid as the documents did not belong to the assessee.2. Jurisdiction of the Assessing Officer:The assessee contended that the satisfaction note required for initiating proceedings under section 153C was not properly recorded. The Tribunal observed that the satisfaction note did not show any reason why the documents belonged to the assessee. Since the documents did not belong to the assessee, the Tribunal concluded that the jurisdiction assumed by the assessing officer was devoid of merit.3. Legality of Additions Based on Seized Documents:The assessing officer made substantial additions based on seized documents, alleging undisclosed income. The Tribunal found that the documents seized from Mr. Masand were used by him for his own purposes and did not relate to the assessee. The Tribunal also noted that the seized documents did not mention the assessee's name. Therefore, the Tribunal deleted the additions made by the assessing officer, holding that the documents did not substantiate the alleged undisclosed income.4. Cross-examination and Natural Justice Principles:The assessee argued that the opportunity for cross-examination was not provided, violating the principles of natural justice. The Tribunal agreed, noting that the statements of Mr. Masand and others were recorded without giving the assessee a chance to cross-examine them. The Tribunal emphasized that the assessing officer should have confronted the assessee with the statements and provided an opportunity for rebuttal. Consequently, the Tribunal held that the additions based on such statements were not sustainable.5. Incriminating Evidence and Its Relevance to the Assessee:The Tribunal examined whether the seized documents were incriminating and relevant to the assessee. It found that the documents did not contain any reference to the assessee and were not seized from the assessee's premises. The Tribunal emphasized that the documents should have a direct nexus with the assessee's business activities for them to be considered incriminating. Since the documents did not meet this criterion, the Tribunal held that they could not be used to make additions in the assessee's hands.6. Set-off Against Disclosed Income:The assessee argued that the disclosed income of Rs. 31.50 crores should be set off against the additions made by the assessing officer. The Tribunal noted that the disclosed income subsumed the additions made by the assessing officer. Since there was no other incriminating material found during the search, the Tribunal allowed the set-off, holding that the disclosed income covered the alleged undisclosed income.Conclusion:The Tribunal comprehensively analyzed the issues involved, emphasizing the importance of proper jurisdiction, adherence to natural justice principles, and the relevance of incriminating evidence. It concluded that the assessment proceedings under section 153C were invalid, the additions based on seized documents were not sustainable, and the disclosed income should be set off against the alleged undisclosed income. Consequently, the appeals filed by the revenue were dismissed, and the assessee's appeals were partly allowed.