2021 (12) TMI 550 - AT - Income Tax

Invalid Notice under Section 153C; Nexus with Seized Material Required for Assessment

The Tribunal dismissed the Revenue's appeal, affirming that the notice issued under Section 153C was invalid as it lacked incriminating material. It ... Assessment u/s 153C - Mandation of recording satisfaction - Whether satisfaction note recorded by the AO has not brought out any seized material belonging to the assessee-company, in fact, there is no incriminating document? - HELD THAT:- It is an admitted fact that, firstly, the satisfaction note recorded by the AO does not mention or is based on any seized material belonging to the assessee company and consequently, the additions made by the AO has no co-relation with any seized material. The aforesaid finding of the CIT(A) has not been rebutted by any material placed on record. Therefore, the aforesaid findings of CIT(A) is based on legal principles upheld by the Hon’ble Jurisdictional High Court as well as Supreme Court in the case of PCIT vs. Sinhgad Technical Education Society [2017 (8) TMI 1298 - SUPREME COURT] - Thus the ground of Revenue is dismissed. Issues Involved:1. Legality of the issuance of notice under Section 153C of the Income Tax Act.2. Whether the seized balance sheet of M/s Golf Link Hospitality Pvt. Ltd. constituted 'incriminating material'.3. Applicability of the Supreme Court decision in the case of M/s Sinhgad Technical Education Society.4. Validity of the assessment framed under Section 153C without incriminating material.Detailed Analysis:1. Legality of the Issuance of Notice under Section 153C:The Revenue challenged the CIT(A)'s decision that there was no incriminating material for the issuance of notice under Section 153C. The Tribunal noted that the satisfaction note recorded by the AO did not bring out any seized material belonging to the assessee-company. It was concluded that the notice issued under Section 153C was legally invalid as it did not contain any incriminating, seized document belonging to the assessee company for the relevant assessment years. The Tribunal upheld the CIT(A)'s observation that the notice was legally unsustainable and quashed the assessment framed on this basis.2. Whether the Seized Balance Sheet Constituted 'Incriminating Material':The Revenue argued that the seized balance sheet of M/s Golf Link Hospitality Pvt. Ltd. should be considered incriminating material. However, the Tribunal upheld the CIT(A)'s finding that the balance sheet was part of regular books and already disclosed by the investing company as well as M/s Golf Link Hospitality Pvt. Ltd. in their return of income. The Tribunal agreed with the CIT(A) that the seized documents did not constitute incriminating material as they were part of regular financial records.3. Applicability of the Supreme Court Decision in M/s Sinhgad Technical Education Society:The Revenue contended that the CIT(A) erred in applying the Supreme Court's decision in the case of M/s Sinhgad Technical Education Society. The Tribunal noted that the Supreme Court had established that for a notice under Section 153C to be valid, there must be a nexus between the seized material and the assessment years in question. The Tribunal found that the CIT(A)'s reliance on this decision was appropriate, as the conditions for a valid notice under Section 153C were not met in this case.4. Validity of the Assessment Framed under Section 153C Without Incriminating Material:The Tribunal affirmed the CIT(A)'s conclusion that the assessment framed under Section 153C was invalid in the absence of any incriminating material. The Tribunal reiterated that the satisfaction note did not mention any specific seized material related to the assessee for the relevant assessment years. Consequently, the Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision to annul the assessment.Conclusion:The Tribunal dismissed the Revenue's appeal, agreeing with the CIT(A) that the notice issued under Section 153C was invalid due to the absence of incriminating material. The Tribunal also upheld the CIT(A)'s application of the Supreme Court's decision in M/s Sinhgad Technical Education Society, reinforcing the requirement of a direct correlation between the seized material and the assessment years for a valid notice under Section 153C.