2022 (3) TMI 305 - AT - Income Tax

Tribunal invalidates assessment under section 153C, rules in favor of appellant

The Tribunal ruled in favor of the appellant in appeals against the CIT(A) order for A.Y. 2011-12 and 2012-13. It found the assessment under section 153C ... Assumption of jurisdiction under section 153C - Requirement of incriminating material for initiation of proceedings under section 153C - Scope of satisfaction for proceedings under section 153C limited to material seized at search - Presumption under section 132(4A) and section 292C that items found at searched premises belong to the person whose premises were searched - Non-applicability of amended provision of section 153C w.e.f. 01.06.2015 to searches conducted earlier - Quashing of assessment where addition is made without reference to incriminating material (Singhad Technical Education Society ratio)Assumption of jurisdiction under section 153C - Requirement of incriminating material for initiation of proceedings under section 153C - Scope of satisfaction for proceedings under section 153C limited to material seized at search - Assumption of jurisdiction under section 153C in the present cases was impermissible as there was no material seized from the searched premises shown to belong to the assessee and the satisfaction did not refer to any incriminating material of the assessee. - HELD THAT: - The search on 27.11.2014 at the premises of the searched person (Abhay Maheshwari) yielded a laptop which, on scanning, led the AO to issue notices under section 153C. However, the record shows nothing seized at the search that belonged to the assessee. In terms of the statutory scheme applicable for the relevant assessment years, the satisfaction to invoke section 153C must be tied to seized material belonging to a person other than the searched person. The satisfaction note does not refer to any laptop or other seized item as belonging to the assessee, and the assessment order contains no reference to incriminating material connecting the seized data to the assessee. Relying on the principle that initiation under section 153C must be grounded on seized material pointing to the taxpayer, and on the authoritative ratio that additions made without such incriminating material are unsustainable, the Tribunal held that the AO's assumption of jurisdiction was unlawful and the assessments were vitiated. [Paras 12, 14, 15]Assessment orders quashed for want of lawful assumption of jurisdiction under section 153C and absence of incriminating material connecting seized material to the assessee.Presumption under section 132(4A) and section 292C that items found at searched premises belong to the person whose premises were searched - Non-applicability of amended provision of section 153C w.e.f. 01.06.2015 to searches conducted earlier - The presumption that items found at the searched premises belong to the occupier applied and the post search amendment to section 153C (w.e.f. 01.06.2015) was not applicable to the search conducted on 27.11.2014. - HELD THAT: - The Tribunal noted the statutory presumption under the provisions applicable to searches that documents and assets found at the premises are presumed to belong to the person whose premises were searched. The satisfaction note contained no assertion that any seized item belonged to the assessee; instead, the material was attributable to the searched person. Further, the amendment to section 153C introduced with effect from 01.06.2015 does not govern searches conducted prior to that date. As the search in this case occurred on 27.11.2014, the unamended provision applies and the expanded post amendment jurisdictional test could not be invoked retrospectively. [Paras 12, 13]Invocation of jurisdiction could not be sustained on a post amendment footing; statutory presumptions pointed to the searched person, not the assessee.Final Conclusion: Both appeals allowed; the Tribunal quashed the assessment orders for A.Y. 2011-12 and A.Y. 2012-13 because the proceedings under section 153C were initiated without any seized material shown to belong to the assessee and the post June 2015 amendment to section 153C was not applicable to the search carried out on 27.11.2014. Issues:1. Jurisdiction under section 153C of the Income Tax Act.2. Validity of assessment based on search operation.3. Application of legal provisions regarding incriminating material.4. Compliance with the amendment made by Finance Act.5. Consideration of evidence and Rule 46A application by CIT(A).Issue 1: Jurisdiction under section 153C of the Income Tax Act:The appeals were against the order of the CIT(A) pertaining to A.Y. 2011-12 and 2012-13. The appellant contended that assumption of jurisdiction under section 153C was illegal as there was no satisfaction that the items belonged to them. The Tribunal noted that the laptop found did not belong to the appellant, and no incriminating material was found during the search. The satisfaction note referred to post-search investigation, which was deemed impermissible. The Tribunal held that the assessment order was bad in law due to lack of jurisdiction under section 153C.Issue 2: Validity of assessment based on search operation:A search and seizure operation was conducted in the case of certain entities, including the appellant, where a laptop was found at Abhay Maheshwari's residence. It was discovered that the appellant had obtained unsecured loans from doubtful entities. The AO initiated assessment proceedings under section 153C and made additions under section 68 of the Act due to lack of satisfactory explanations from the appellant. The CIT(A) dismissed the appellant's challenge on legal grounds. However, the Tribunal found that no incriminating material was found during the search, rendering the assessment bad in law.Issue 3: Application of legal provisions regarding incriminating material:The satisfaction note for initiating proceedings under section 153C did not establish any connection of the seized items with the appellant. The Tribunal referred to legal provisions and precedents to emphasize that the absence of incriminating material during the search invalidated the assessment. The Tribunal also highlighted the importance of adhering to the provisions of the Act and relevant case laws in determining the legality of the assessment.Issue 4: Compliance with the amendment made by Finance Act:The appellant argued that the assumption of jurisdiction under section 153C was illegal due to non-compliance with the amendment by Finance Act. The Tribunal, after considering the legal aspects and the specific provisions of the Act, concluded that the assessment order was not in accordance with the law and thus, liable to be quashed.Issue 5: Consideration of evidence and Rule 46A application by CIT(A):The appellant raised concerns about the CIT(A) failing to adjudicate on the balance addition of a specific amount and not considering the evidence presented along with an application under Rule 46A. The Tribunal noted the appellant's contentions and highlighted the importance of a thorough consideration of all relevant evidence and applications. The Tribunal emphasized that the CIT(A) should have duly considered the application under Rule 46A, indicating a procedural lapse in the assessment process.In conclusion, the Tribunal found multiple legal flaws in the assessment proceedings, including lack of jurisdiction under section 153C, absence of incriminating material, and non-compliance with legal provisions. The Tribunal, after detailed analysis and consideration of relevant legal precedents, quashed the assessment orders and allowed the appeals in favor of the appellant.