2024 (9) TMI 1376 - AT - Income Tax

Section 153C assessment quashed as seized documents failed to establish connection with assessee or impact income

The ITAT Nagpur-AT allowed the assessee's appeal against additions made under section 153C proceedings. The tribunal held that the documents seized during ... Addition made in proceedings u/s. 153C - whether any incriminating documents relating to assessee unearthed as a result of search, when the case was already concluded i.e., unabated - HELD THAT:- Five concerns have been named in the Satisfaction Note. It is not clear as to how the documents pertain to the assessee - The said documents are not incriminating as per the satisfaction note since nowhere the name of the assessee is there. If that be so, how addition can be perpetrated against such documents. It is surprising to note that no addition has been made against the documents marked as “incriminating” Annexure B–2(23). The document dated 28/04/2017, is only an estimate of profit provided the price is quoted within the certain range. Nowhere it has been brought on record that actual price charged for resin capsules was within the same price range. Similar orders were passed verbatim for the other entities namely Techno Precision Engineers Ltd. and Support Technologies Ltd. The same document is pertaining to multiple entities as per the Assessing Officer who is same for all the assessees. We ask a question to ourselves as to whether it is at all possible? Abject non–application of mind and brazen untenable stand of the Assessing Officer is displayed.An estimated profitability statement is held to be constant for seven years ignoring inflation. Then why for purpose of computing long term capital gain cost inflation index changes every year as enshrined in section 48 of the Act. The Satisfaction Note drawn on a combined basis without any specific reference to any year is baseless and unsustainable and defies common logic. The bedrock of usurpation of jurisdiction under section 153C of the Act is missing palpably in the instant case since these documents are not conclusively established to pertain with the assessee nor do the same have a bearing on the determination of total income for the respective years. The year could then be subjected to action under section 154C of the Act only when the assessment is likely to be influenced or impacted by the material discovered. Section 153C of the Act neither mandates nor emerges a mechanical or an en–blank exercise of power. Hence, the assessment order is unsustainable on legal grounds. Decided in favour of assessee. Issues:Challenge to assessment order under section 153C, Addition made in absence of incriminating documents, Disregard of returned loss, Common net profit margin application, Seized documents not belonging to assessee, Charging of interest under section 234B.Analysis:Challenge to assessment order under section 153C:The assessee challenged the assessment order passed by the Asst. Commissioner of Income Tax under section 153C, contending it was bad in law and wrong on facts. The Tribunal noted that the appeals involved common issues arising from identical facts and circumstances. The assessee argued that no incriminating materials were found to initiate proceedings under section 153C. The Tribunal examined the satisfaction note under section 153C, highlighting glaring infirmities. The Tribunal found that the documents seized did not conclusively establish a connection to the assessee, leading to a successful challenge of jurisdiction under section 153C.Addition made in absence of incriminating documents:The Tribunal observed that the seized documents did not belong to the assessee and did not support the addition made by the Assessing Officer. The Tribunal emphasized that the assessment order was unsustainable on legal grounds due to the lack of a clear link between the seized documents and the assessee. As a result, the Tribunal allowed the grounds raised by the assessee challenging the addition made in the absence of incriminating documents.Disregard of returned loss:The Tribunal addressed the issue of disregarding the returned loss declared by the assessee and instead estimating net business profits. The Tribunal found that the Assessing Officer's action in disregarding the returned loss and estimating profits was unjustified. The Tribunal highlighted the need for a proper basis for such estimations and concluded that the action of the authorities was not supported by the facts of the case.Common net profit margin application:Regarding the application of a common net profit margin on the entire sales turnover, the Tribunal noted that the assessee was engaged in trading and manufacturing activities with different profit margins for various products. The Tribunal criticized the authorities for applying a common net profit margin based on conjectures and surmises, deeming it illogical. The Tribunal emphasized the importance of considering the specific circumstances of the assessee's business activities in determining profit margins.Seized documents not belonging to assessee:The Tribunal highlighted that the seized documents relied upon by the Assessing Officer did not belong to the assessee and were not related to the year under consideration. The Tribunal found that no additions could be made based on documents that did not pertain to the assessee. The Tribunal deemed the actions of the authorities in confirming such additions as unjustified and liable to be quashed.Charging of interest under section 234B:The Tribunal also addressed the issue of charging interest under section 234B of the Income Tax Act. The Tribunal noted that the interest charged was deemed improper by the assessee. However, the Tribunal's detailed analysis primarily focused on the challenges to the assessment order under section 153C and the additions made in the absence of incriminating documents, leading to the allowance of the assessee's appeal for all the years in question.This comprehensive analysis of the judgment highlights the key legal issues, arguments presented by the parties, and the Tribunal's reasoning in arriving at its decision.