2021 (4) TMI 907 - AT - Income Tax

Assessing Officer's Lack of Jurisdiction Renders Assessment Void

The Tribunal held that the Assessing Officer lacked jurisdiction to issue a notice under Section 153C due to the failure to record proper satisfaction in ... Assessment u/s 153C - Whether no satisfaction was recorded in case of search person? - HELD THAT:- It is pertinent to note that no satisfaction was recorded in case of search person and thus, the assessment itself becomes null and void. In fact, in the present case the Assessing Officer of assessee while submitting the remand report has categorically accepted that he has not recorded any satisfaction in the file of searched person. He has just taken a plea that he was the AO of both searched person and of the assessee. Besides this the contentions of the Ld. AR that as per the sub-rule-5 of Rule 6F every assessee under the Income Tax Act has to maintain the account of six previous years for the purpose of Income Tax. Now supposing a search is conducted in one year and documents of other person are handed over to the Assessing Officer, of other person or to the Assessing Officer with whom jurisdiction is centralized, after two years from the date of search, then for which six years the other person would show his accounts, whether for the years which are applicable for search person or for those years which are governed by the proviso. Thus, for those years which are governed by the proviso because the Income Tax Rules say so. And that is why the legislature in his wisdom by virtue of proviso, has substituted the date of search with the date of receiving of the documents pertaining to such other. Otherwise provisions of Rule 6F would redundant and the Assessing Officer can asked for records of those years also for which an assessee is not obliged to maintain records. However, the Assessing Officer assuming the impugned year, as a year of search, has framed the assessee under normal provisions of Income Tax. While applying the mandate of the proviso of section 153C read with 153A(1) and principle of law as laid down by the Hon’ble Jurisdictional High Court in the case of RRJ Securities [2015 (11) TMI 19 - DELHI HIGH COURT] then the six years which were to be covered are the years mentioned in table given by the Ld. AR. Thus, these contentions of the Ld. AR are sustainable under the provisions of the Income Tax Act as well as Income Tax Rules. Besides this, the CIT(A) has not taken the cognizance of the additional evidence filed by the assessee and thus on the merit also, the assessee succeeds. Hence, the appeal of the assessee being is allowed. Issues Involved:1. Jurisdiction of the Assessing Officer under Section 153C.2. Recording of satisfaction before issuing notice under Section 153C.3. Validity of ex-parte assessment and notices issued under Sections 142(1) and 143(2).4. Addition of unexplained expenditure under Section 69C.5. Admissibility of additional grounds of appeal.Detailed Analysis:1. Jurisdiction of the Assessing Officer under Section 153C:The primary issue was whether the Assessing Officer (AO) had the jurisdiction to issue a notice under Section 153C. The assessee argued that the AO did not record proper satisfaction in the file of the searched person as mandated by the provisions of Section 153C. The Tribunal noted that the AO failed to record any satisfaction in the file of the searched person and merely assumed jurisdiction, which is contrary to the legal requirements. The Tribunal emphasized that the jurisdictional issue can be raised at any stage of the proceedings, as supported by the Hon'ble Apex Court in the case of Singhad Education Society (397 ITR 344).2. Recording of Satisfaction Before Issuing Notice under Section 153C:The Tribunal found that the AO did not record the necessary satisfaction in the file of the searched person, which is a prerequisite for issuing a notice under Section 153C. The AO admitted in the remand report that no such satisfaction was recorded. The Tribunal referred to the CBDT Circular and various judicial precedents, including the case of Ganpati Fincap Services P. Ltd., to underline the need for a separate satisfaction note by the AO of the searched person. The failure to record such satisfaction rendered the assessment void ab initio.3. Validity of Ex-parte Assessment and Notices Issued under Sections 142(1) and 143(2):The assessee contended that the ex-parte assessment was sustained by the CIT(A) based on incorrect claims that multiple notices under Sections 142(1) and 143(2) were issued. The Tribunal observed that only one notice under Section 142(1) was issued, and no notice under Section 143(2) was served. This procedural lapse invalidated the ex-parte assessment. Additionally, the Tribunal noted that the assessee was bedridden and unable to attend the proceedings, which further justified setting aside the ex-parte assessment.4. Addition of Unexplained Expenditure under Section 69C:The AO made an addition of Rs. 77,62,410/- for Assessment Year (AY) 2009-10 and Rs. 70,52,880/- for AY 2010-11 under Section 69C, relating to unexplained expenditure. The assessee argued that these investments were made from funds received from his father. The Tribunal did not delve deeply into the merits of this addition, as the primary focus was on the jurisdictional and procedural lapses. However, the Tribunal implied that the addition could not stand due to the invalidity of the assessment itself.5. Admissibility of Additional Grounds of Appeal:The Tribunal addressed the issue of whether the CIT(A) erred in not admitting additional grounds of appeal related to the recording of satisfaction before issuing notice under Section 153C. The Tribunal held that these grounds were purely legal and could be raised at any stage during the pendency of the proceedings. The CIT(A)'s refusal to admit these grounds was incorrect, and the Tribunal allowed the additional grounds, emphasizing the importance of addressing jurisdictional issues.Conclusion:The Tribunal concluded that the AO failed to record the necessary satisfaction in the file of the searched person, rendering the assessment void. The procedural lapses, including the improper issuance of notices and the ex-parte assessment, further invalidated the assessment. The Tribunal allowed both appeals, setting aside the assessment orders for AY 2009-10 and AY 2010-11.Order Pronouncement:The order was pronounced in the open court on April 20, 2021, allowing both appeals of the assessee.