2024 (7) TMI 702 - AT - Income Tax

AO lacks jurisdiction under section 153C when satisfaction note based on assessee's own survey material not third party search

Deputy Commissioner of Income Tax, Central Circle 2 (1) Versus M/s. Hill Max Export, Coimbatore

Deputy Commissioner of Income Tax, Central Circle 2 (1) Versus M/s. Hill Max Export, Coimbatore - TMI Issues Involved:1. Validity of proceedings initiated under Section 153C of the Income Tax Act.2. Addition of Rs. 5,25,00,000/- under Section 69B for unexplained investment.Detailed Analysis:1. Validity of Proceedings Initiated under Section 153C:The primary issue revolves around whether the proceedings initiated by the Assessing Officer (AO) under Section 153C of the Income Tax Act were valid. The AO initiated these proceedings based on materials found during a survey under Section 133A at the assessee's premises, which was connected to a search under Section 132 in the case of M/s. Christy Fried Gram Industry. The AO recorded a satisfaction note on 17.09.2020, stating that documents found during the survey indicated a discrepancy in the sale consideration of a property.The Commissioner of Income Tax (Appeals) [CIT(A)] held that the proceedings under Section 153C were invalid because the materials used to initiate the proceedings were found during a survey, not a search. According to Section 153C, proceedings can only be initiated based on materials found during a search of a person other than the searched person. The CIT(A) concluded that since the materials were found during a survey at the assessee's premises, the initiation of proceedings under Section 153C was not legally sustainable.2. Addition of Rs. 5,25,00,000/- under Section 69B for Unexplained Investment:The AO made an addition of Rs. 5,25,00,000/- under Section 69B, alleging that the assessee paid on-money for purchasing a property. The AO based this addition on the difference between the sale consideration mentioned in a sale agreement dated 01.04.2015 (Rs. 7,45,00,000/-) and the amounts in two registered sale deeds dated 25.08.2015 (Rs. 2,20,00,000/-).The CIT(A) deleted the addition, noting that the assessee had accounted for the entire consideration of Rs. 7,45,00,000/- in its books of accounts and explained the sources for the investment. The CIT(A) observed that the sale agreement included the purchase of land, building, and machinery, and the entire consideration was reflected in the assessee's financial statements and return of income filed for the assessment year 2016-17, which was before the survey date.The CIT(A) also pointed out that the AO failed to consider that the sale agreement included movable properties (machinery) that did not require a registered sale deed. The CIT(A) concluded that the AO's addition was based on a misconception and that the assessee had fully disclosed the investment in its books.Conclusion:The Tribunal upheld the CIT(A)'s decision, confirming that the proceedings under Section 153C were invalid as they were based on materials found during a survey, not a search. The Tribunal also agreed with the CIT(A) that the addition under Section 69B was unjustified, as the assessee had accounted for the entire sale consideration in its books and explained the sources for the investment. Consequently, the appeal filed by the revenue was dismissed, and the cross-objection filed by the assessee was deemed infructuous.