2022 (4) TMI 231 - AT - Income Tax

Tribunal quashes assessments for 2004-05 and 2005-06 due to lack of jurisdiction. Assessments annulled without merit review.

The Tribunal quashed the assessments for the years 2004-05 and 2005-06 as the Assessing Officer lacked jurisdiction under Section 153C, given the absence ... Jurisdiction under Section 153C (pre-amendment) - Belonging requirement for seized documents - Distinction between 'belongs to' and 'pertains to/relates to' - Presumption that documents found in search belong to the searched person - Requirement to rebut presumption by cogent material - Quashing of assessment for lack of jurisdictionJurisdiction under Section 153C (pre-amendment) - Belonging requirement for seized documents - Presumption that documents found in search belong to the searched person - Requirement to rebut presumption by cogent material - Distinction between 'belongs to' and 'pertains to/relates to' - Validity of assumption of jurisdiction under pre amendment Section 153C for A.Y. 2004 05 where no incriminating material belonging to the assessee was seized during search on a third party. - HELD THAT: - Under the pre amended Section 153C the Assessing Officer could assume jurisdiction in respect of a person other than the searched person only where the books or documents seized 'belong' to that other person. Statutory presumptions in Sections 132(4A)(i) and 292C(1)(i) operate to presume that documents found in the possession of the searched person belong to that searched person; the AO must rebut this presumption by recording cogent material showing that the seized documents belong to some other person. The amended post 2015 provision widened the test to documents that 'pertain to' or 'relate to' another person, but that amendment is not applicable to searches conducted prior to 01.06.2015. Applying these legal principles and the cited High Court authorities, the Tribunal found that no incriminating material or documents belonging to the assessee were seized during the search on 23.02.2006; the AO therefore lacked the jurisdictional satisfaction required by the pre amended Section 153C and his assumption of jurisdiction was invalid. [Paras 10, 11]Assessment for A.Y. 2004 05 framed under Section 143(3) read with Section 153C is quashed for want of jurisdiction; appeal allowed.Jurisdiction under Section 153C (pre-amendment) - Quashing of assessment for lack of jurisdiction - Validity of assessment for A.Y. 2005 06 framed under Section 143(3) read with pre amended Section 153C, insofar as it depends on the same jurisdictional premise as A.Y. 2004 05. - HELD THAT: - The facts and jurisdictional defect in the assumption of jurisdiction for A.Y. 2004 05 apply mutatis mutandis to A.Y. 2005 06. Because the assessment for 2004 05 (which formed the basis for disallowance of interest in 2005 06) was quashed for want of jurisdiction under pre amended Section 153C, the consequent assessment actions for A.Y. 2005 06 founded on the same notice are also invalid. The Tribunal therefore refrained from deciding the merits of additions or disallowances and quashed the assessment framed for A.Y. 2005 06 on jurisdictional grounds. [Paras 15, 16]Assessment for A.Y. 2005 06 framed under Section 143(3) read with Section 153C is quashed for want of jurisdiction; appeal allowed.Final Conclusion: Both appeals for A.Y. 2004 05 and A.Y. 2005 06 are allowed: the assessments framed under Section 143(3) read with pre amended Section 153C are quashed for want of jurisdiction because no seized documents belonging to the assessee were found in the third party search and the jurisdictional 'belonging' requirement of the pre 2015 Section 153C was not satisfied. Issues Involved:1. Addition of Rs. 10,00,000/- as unexplained cash credit under Section 68 of the Income-tax Act, 1961.2. Addition of Rs. 2,52,000/- as unexplained cash credit under Section 68 on account of gifts received.3. Legality of invoking Section 153C and the validity of the assessment order.Detailed Analysis:Issue 1: Addition of Rs. 10,00,000/- as unexplained cash credit under Section 68The Assessing Officer (AO) observed that the assessee had claimed unsecured loans aggregating to Rs. 10 lacs from ten persons. During the search operations, it was found that the bank accounts of these persons were used to launder the assessee's unaccounted money. The AO concluded that the loans were unexplained cash credits under Section 68. The CIT(A) upheld this addition, noting that the lenders were of no financial means and the bank accounts were used to route unaccounted money. The Tribunal, however, quashed the assessment on the grounds that the AO had wrongly assumed jurisdiction under Section 153C, as no incriminating material 'belonging' to the assessee was found during the search.Issue 2: Addition of Rs. 2,52,000/- as unexplained cash credit under Section 68 on account of gifts receivedThe AO added Rs. 2,52,000/- to the assessee's income, claiming that the gifts were bogus transactions intended to introduce undisclosed income. The CIT(A) upheld this addition, noting that the gift deeds were neither notarized nor registered, and the donors had insufficient income to justify the gifts. The Tribunal did not delve into the merits of this addition, as it quashed the assessment on jurisdictional grounds.Issue 3: Legality of invoking Section 153C and the validity of the assessment orderThe Tribunal focused on whether the AO had validly assumed jurisdiction under Section 153C. It noted that for assessments prior to the amendment effective from 01.06.2015, the seized documents must 'belong' to the assessee. The Tribunal cited various judicial pronouncements, including CIT Vs. Arpit Land (P) Ltd. and PCIT Vs. Index Securities Pvt. Ltd., to support its view that the AO had wrongly assumed jurisdiction. The Tribunal concluded that the assessment was invalid as no incriminating material 'belonging' to the assessee was found during the search.Separate Judgment for A.Y. 2005-06For the assessment year 2005-06, the AO disallowed Rs. 96,000/- as interest on the unsecured loans deemed bogus in the previous year. The CIT(A) upheld this disallowance. The Tribunal applied its reasoning from the 2004-05 assessment and quashed the assessment for 2005-06 as well, citing the same jurisdictional issue under Section 153C.ConclusionThe Tribunal quashed the assessments for both the years 2004-05 and 2005-06 due to the AO's lack of jurisdiction under Section 153C, as no incriminating material 'belonging' to the assessee was found during the search. Consequently, it did not address the merits of the additions made by the AO.