2025 (7) TMI 1796 - AT - Income Tax

ITAT confirms no incriminating seized material under Section 153C; Revenue's appeal dismissed, CIT(A) order upheld

Deputy Commissioner of Income Tax, Central Circle-3 (4), Chennai. Versus M/s. Emrald Realty Pvt Ltd., M. Sukumar Reddy

The ITAT Chennai upheld the CIT(A) order, confirming that no incriminating seized material related to the assessee for the relevant assessment year was ... Assessment u/s 153C - incriminating seized material found in search or not? - HELD THAT:- Revenue is fully conscious of the fact that no seized material qua the assessee for relevant assessment year was in possession of the department. We have also noted that the Hon’ble Coordinate Benches of this tribunal in the case of Group companies have passed favorable orders which have been relied upon by the CIT(A). Accordingly, we are of the considered view that no interference is required to be made to the order of the Ld.CIT(A) at this stage. The same is therefore confirmed and all the grounds of appeal raised by the Revenue are dismissed. 1. ISSUES:1.1 Whether the appeals filed by the Revenue are maintainable in view of the prescribed tax effect limit under CBDT Circular No.9/2024 dated 17.09.2024.1.2 Whether the delay in filing the appeals before the tribunal can be condoned.1.3 Whether the Assessing Officer (AO) had jurisdiction to invoke section 153C of the Income Tax Act in the absence of incriminating seized material pertaining to the assessee for the relevant assessment years.1.4 Whether the addition of undisclosed income based on seized documents belonging to third parties and not directly incriminating the assessee is valid under section 153C.1.5 Whether the satisfaction note recorded by the AO meets the jurisdictional requirements under section 153C.2. RULINGS / HOLDINGS:2.1 The appeals filed by the Revenue are maintainable as they have been filed in consonance with sub-clause (h) of clause 3.1 of CBDT Circular No.5 of 2024 dated 15.03.2024, notwithstanding the tax effect being below Rs. 60 lakhs.2.2 The delay of 21 days in filing the appeals is condoned as the delay was neither willful nor wanton and adequate justification was provided.2.3 The AO did not have jurisdiction to invoke section 153C in the absence of incriminating seized material pertaining to the assessee for the relevant assessment years; mere reliance on third-party seized material is insufficient.2.4 The addition of undisclosed income based solely on documents seized from other persons without incriminating material specific to the assessee is invalid under section 153C.2.5 The satisfaction note recorded by the AO was defective as it omitted reference to incriminating material such as stamped receipts and sworn statements that could corroborate the seized documents, thereby failing to satisfy the jurisdictional requirements under section 153C.2.6 The orders of the lower appellate authority deleting the additions and holding lack of jurisdiction under section 153C are confirmed.3. RATIONALE:3.1 The court applied the statutory provisions of section 153C read with section 153A of the Income Tax Act, emphasizing the requirement of possession of incriminating material pertaining to the assessee to invoke jurisdiction under section 153C.3.2 The decision follows the settled legal position established by the Hon'ble Supreme Court in cases such as Abhisar Buildwell and Singad Educational Trust, which require incriminating material specific to the assessee for valid proceedings under section 153C.3.3 The court relied on precedent from coordinate benches of the tribunal and authoritative decisions including the Hon'ble Supreme Court's ruling in ITO vs Canyon Financial Services Ltd, which mandates that satisfaction notes must meet jurisdictional requirements to uphold assessments under section 153C.3.4 The tribunal rejected the Revenue's contention that seized material from third parties could be treated as incriminating material for the assessee without a proper satisfaction note, noting that such reliance is impermissible and renders the jurisdiction assumption bad in law.3.5 The tribunal also considered the factual matrix including remand reports and statements recorded under section 131, concluding that the AO's failure to incorporate these in the satisfaction note rendered the invocation of section 153C jurisdiction defective.