Assessment under Section 153A invalid when based on third party search material requires Section 153C proceedings

The ITAT Chennai held that an assessment under Section 153A based on incriminating material found during a third party's search was legally invalid. The court ruled that such proceedings must be initiated under Section 153C, requiring mandatory satisfaction recording by both the searched person's AO and the other person's AO. Since no such satisfaction was recorded and the assessment was incorrectly framed under Section 153A, the additions could not be sustained. Additionally, the court dismissed revenue's appeal regarding undisclosed income addition, finding that relied-upon statements were retracted, vendor affidavits were ignored, and seized documents lacked corroborative evidence. The case was decided in favor of the assessee.

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Issues Involved:
1. Legality of assessment framed u/s 153A based on materials found during the search of a third party.
2. Validity of addition of Rs. 5,68,76,000/- as undisclosed income based on seized excel sheet and sworn statement.

Summary:

Issue 1: Legality of Assessment Framed u/s 153A

The assessee challenged the assessment proceedings on legal grounds, arguing that the materials on which the addition was based were found during the search of a third party and not the assessee. The CIT(A) rejected this contention, stating that the transactions between the entities of the group were intermingled, and the excel sheet found could not be considered as found from a third-party premise. However, the Tribunal noted that the assessment was framed u/s 153A, which was not sustainable as the addition was based on incriminating material found during the search on a third party. The Tribunal emphasized that proceedings should have been initiated u/s 153C, which requires recording of satisfaction by the AO of the searched person and the AO of the other person. Since no such satisfaction was recorded, the assessment framed u/s 153A was held to be bad in law.

Issue 2: Validity of Addition of Rs. 5,68,76,000/- as Undisclosed Income

The CIT(A) deleted the addition of Rs. 5,68,76,000/- made by the AO towards undisclosed income. The AO had relied on an excel sheet seized during the search and a sworn statement recorded from the accountant, Smt. Yasodha Rajan. However, the CIT(A) observed that the AO did not render any findings on the sworn affidavit submitted by the accountant retracting her statement. The Tribunal concurred with the CIT(A) that the reliance on the sworn statement was insufficient without examining the deponent. Additionally, the vendors' sworn affidavits denying receipt of extra payment were not considered by the AO. The Tribunal also agreed with the CIT(A) that the excel sheet was a dumb document lacking basic details and corroborative evidence. Therefore, the addition based on this document was not sustainable.

Conclusion:

The Tribunal dismissed the revenue's appeal and partly allowed the assessee's cross-objection, holding that the assessment framed u/s 153A was bad in law and the addition of Rs. 5,68,76,000/- was not sustainable on merits. The order was pronounced on 3rd June, 2024.

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