2021 (1) TMI 324 - AT - Income Tax

Tribunal quashes assessments for lack of incriminating material, emphasizes procedural compliance and evidence requirements.

The Tribunal allowed the assessee's appeals for the assessment years 2005-06, 2006-07, and 2007-08, quashing the assessments made under section 153C read ... Addition u/s 153A - deposits made by the members of the society as unexplainable - incriminating material found during the search or not? - HELD THAT:- From the observation of the A.O it is evident that the A.O has not made any specific reference to the incriminating material found during the search. Under these facts non reference to the incriminating material by the A.O is contrary to the settled position of law. We hold accordingly. This ground of assessee’s appeal is allowed. Additional ground is against non recording of satisfaction by the A.O of the searched person - Undisputedly, the revenue has not placed on record satisfaction note by the assessing officer of the searched person recording that the documents belong to the other person in this case assessee herein. In the absence of such recording the assessment so framed is contrary to provision of law and the binding precedence. We, therefore, hold that the assumption of jurisdiction by the assessing officer u/s 153C of the Act is not in accordance with law. Hence, the assessment so framed u/s 153C of the Act is bad in law deserves to be quashed. This ground of the assessee’s appeal is allowed. Issues Involved:1. Legality of the addition of Rs. 20,00,000/- made by treating the deposits as unexplainable.2. Validity of the assessment order under section 153C read with section 143(3) without reference to any incriminating material.3. Validity of the assessment order under section 153C read with section 143(3) without the satisfaction recorded by the Assessing Officer of the searched persons.4. Application of section 292C concerning the possession or control of seized material.Issue-wise Detailed Analysis:1. Legality of the Addition of Rs. 20,00,000/-:The Tribunal examined the addition of Rs. 20,00,000/- made by the Assessing Officer (AO) by treating the deposits as unexplainable. The AO had observed that the assessee failed to provide details regarding the current liability of Rs. 20,00,000/-, including names and addresses of the members of the society. Consequently, the AO deemed the amount as income under section 68 of the Income Tax Act. The Commissioner of Income Tax (Appeal) [CIT(A)] upheld this addition, noting that the assessee failed to provide sufficient documentary evidence to support its claim. The Tribunal found that the AO did not make any specific reference to incriminating material found during the search, which is contrary to the settled position of law. Therefore, the Tribunal allowed the assessee's ground and held that the addition was not justified.2. Validity of the Assessment Order under Section 153C Read with Section 143(3) Without Reference to Any Incriminating Material:The Tribunal noted that the AO made the addition without reference to any incriminating material found during the search. The AO's assessment order did not mention any specific incriminating documents related to the assessee. The Tribunal referred to several judicial precedents, including decisions in the cases of Shri Kamal Kishore Kotwani and Kanta Prasad Dwivedi, which emphasize that additions under section 153C must be based on incriminating material found during the search. The Tribunal concluded that the AO's failure to refer to incriminating material rendered the assessment invalid.3. Validity of the Assessment Order under Section 153C Read with Section 143(3) Without the Satisfaction Recorded by the Assessing Officer of the Searched Persons:The Tribunal addressed the issue of whether the AO of the searched person recorded the necessary satisfaction before initiating proceedings under section 153C. The Tribunal found that the revenue failed to provide the satisfaction note recorded by the AO of the searched person. The Tribunal emphasized that the recording of satisfaction by the AO of the searched person is a prerequisite for initiating proceedings under section 153C. The Tribunal referred to the judgment of the jurisdictional High Court in the case of CIT vs. Mechmen, which underscores the importance of this procedural requirement. Consequently, the Tribunal held that the assumption of jurisdiction by the AO under section 153C was not in accordance with the law, and the assessment was quashed.4. Application of Section 292C Concerning the Possession or Control of Seized Material:The Tribunal did not specifically address the application of section 292C in its detailed analysis. However, it implicitly acknowledged that section 292C pertains to the presumption of ownership of seized assets or documents. The Tribunal's focus was primarily on the procedural lapses in the recording of satisfaction and the absence of incriminating material, which were sufficient grounds to invalidate the assessment.Conclusion:The Tribunal allowed the assessee's appeals for the assessment years 2005-06, 2006-07, and 2007-08, quashing the assessments made under section 153C read with section 143(3) due to the lack of reference to incriminating material and the absence of the required satisfaction recorded by the AO of the searched person. The Tribunal's decision underscored the importance of adhering to procedural requirements and ensuring that additions are based on concrete evidence found during the search.