Notice issued u/s 153C without valid satisfaction notice is bad-in-law

By POONAM GANDHI Income Tax Judiciary August 19, 2023

TaxGuru Citation: 2023 taxguru.in 5122
Case Name: Macro Properties Pvt Ltd Vs DCIT (ITAT Jaipur)
Appeal Number: Only available for paid members
Date of Judgement/Order: Only available for paid members
Related Assessment Year: 2013-14
Courts: All ITAT, ITAT Jaipur

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Macro Properties Pvt Ltd Vs DCIT (ITAT Jaipur)

ITAT Jaipur held that in absence of a valid satisfaction note the notice issued under Section 153C of the Income Tax Act 1961 is bad in law. Resultantly the assessment order passed u/s 143(3) r.w.s. 153C of the Act is void ab initio and liable to be quashed.

Facts- A search and seizure action and survey action was carried out by the Income Tax Department on the members of Krian Fine Jewellers Group on which the Assessee is one of the members.

It was noticed that books of accounts or documents found and seized during the search belonged to a person other than the person in the case of whom the search u/s 132 of the Act was carried out, notice (s) under section (s) 153C of the Act was issued and served upon the assessee, requiring him to file a true ad correct return of income as prescribed under Rule 12 of the Income Tax Rules, 1962 within 15 days of the service of the said notice.

An assessment order confirming various additions in the income of the assessee was made by AO by passing an assessment order u/s 153C of the Act. CIT(A) confirmed the action of AO. Being aggrieved, the present appeal is filed mainly alleging that AO has passed the order without recording the satisfaction as required u/s. 153C of the Act as it did not transpire from the order of the assessment as there is no discussion to recording of the satisfaction for taking up the case of the assessee u/s. 1 53C of the Act.

Conclusion- Held that in absence of a valid satisfaction note recorded clearly justifying the material that the same are in the nature of incriminating in nature qua the assessee, we are of the considered view that the notice issued u/s 153C of the I.T. Act 1961 is bad in law and consequently whole proceedings including the assessment order passed u/s 143(3) r.w.s. 153C of the Act is void ab initio and liable to be quashed.

FULL TEXT OF THE ORDER OF ITAT JAIPUR

The assessee has filed these four appeals against four different orders of the ld. CIT(A)-4,Jaipur dated 13-02-2023 for the assessment years 2013-14 TO 2016-17 respectively raising therein following grounds of appeal:

Assessment Year 2013-14

1. That the orders passed by the Ld CIT(A) and the Assessing Officer are opposed to law, natural justice, equity, weight of evidences, probabilities , facts and circumstances of the case.

2. The Ld CIT(A) has erred in law as well as on the facts and circumstances of the case in dismissing the appeal of the appellant without providing adequate opportunity and also in confirming in full the absolutely illegal , arbitrary and void ab initio order of the Ld Assessing Officer without even considering the self speaking facts of the impugned assessment order, which need no further examination of records or any other documents.

3. Ld CIT(A) has erred in law as well as on facts and circumstances of the case in not quashing the illegal Assessment order passed by the Assessing Officer without assumption of proper jurisdiction as no proper satisfaction as mandated u/s 153C of the I.T.Act was recorded by the Assessing Officer.

3.1 Ld CIT(A) has erred in law as well as on facts and circumstances of the case in completely ignoring the fact that the Assessing Officer has not recorded satisfaction about any seized paper belonging to the Assessee for the impugned Assessment Year.

4. Ld CIT(A) erred in law as well as on facts and circumstances of the case in sustaining the addition of Rs 1,40,75,700/ made by the AO u/s 69 of the Act on account of alleged cash investment in property without considering the fact that assessee was not the owner of the said property and the said property was purchased by ShPooranmal Kanwat and also that no such alleged sale consideration was ever paid even by him.

4.2 Ld CIT(A) erred in law as well as on facts and circumstances of the case in not considering the fact that no opportunity to cross examine ShPooranmalKanwat was provided to the Appellant and therefore, his statement could not have been relied upon in taking an adverse view against the appellant.

5. Ld CIT(A) erred in law as well as on facts and circumstances of the case in sustaining the addition of Rs 1,34,84,685/ made by the AO on account of alleged short term capital gains without considering the fact that assessee was not the owner of the said property.

5.1 Ld CIT(A) further erred in law as well as on facts and circumstances of the case in not considering the submissions that no material has been brought on record by the AO which might suggest that the sale consideration was received by the appellant.

5.2 without prejudice, Ld CIT(A) erred in law as well as on facts and circumstances of the case in not giving any finding on the ground that the Assessing Officer arbitrarily applied the provisions of Section 50C(1) of the Income Tax Act.

6. Ld CIT(A) erred in law as well as on facts and circumstances of the case in sustaining the addition of Rs 3,68,874/ made by the AO u/s 69 of the Act on account of alleged investment without considering the fact that assessee was not the owner of the said property and the said property was purchased by Sh Vishnu Kumar Nakwal.

6.1 Ld CIT(A) further erred in law as well as on facts and circumstances of the case in not considering the submissions that no material has been brought on record by the AO which might suggest that any investment in the property was made by the assessee and also in not considering that the investment in the said property was made by the purchaser through source verifiable banking channels only.

6.2 Ld CIT(A) erred in law as well as on facts and circumstances of the case in not considering the fact that no opportunity to cross examine Sh Vishnu Kumar Nakwal was provided to the Appellant and therefore, his statement could not have been relied upon in taking an adverse view against the appellant.

7. Ld CIT(A) erred in law as well as on facts and circumstances of the case in sustaining the addition of Rs 29,95,596/ made by the AO on account of alleged cash investment in property without considering the fact that assessee was not the owner of the said property.

7.1 Ld CIT(A) further erred in law as well as on facts and circumstances of the case in not considering the submissions that no material has been brought on record by the AO which might suggest that any investment in the property was made by the assessee and also in not considering that the investment in the said property was made by the purchaser through source verifiable banking channels only.

7.2 Ld CIT(A) further erred in law as well as on facts and circumstances of the case in not even considering the submissions that the said transaction made by Smt Vijay Laxmi pertain to A.Y.2014-15 and not to A.Y.2013-14 and therefore cannot be considered for making any addition for the impugned assessment year.

7.3 Ld CIT(A) erred in law as well as on facts and circumstances of the case in not considering the fact that no opportunity to cross examine Smt Vijay Laxmi was provided to the Appellant by the AO and therefore, her statement could not have been relied upon in taking an adverse view against the appellant.

8. Ld CIT(A) further erred in law as well as on facts and circumstances of the case in confirming the illegal disallowance of expenses amounting to Rs 3,55,714/ made by the AO arbitrarily.

9. Ld CIT(A) erred in law as well as on facts and circumstances of the case in rejecting the contention of the appellant that the AO has grossly erred in invoking the provisions of section 115 BBE of the Income Tax Act.’’

Assessment Year 2014-15

‘’1. That the orders passed by the Ld CIT(A) and the Assessing Officer are opposed to law, natural justice, equity, weight of evidences, probabilities , facts and circumstances of the case.

4. The ld. CIT(A) erred in law as well as on facts and circumstances of the case in not directing the Assessing Officer to allow to the assessee duly made claim of carry forward of brought forward losses ofA.Y. 2012-13 and 2013-14 amounting to Rs.5,98,326/- rejected by the AO arbitrarily

5. Ld CIT(A) erred in law as well as on facts and circumstances of the case in sustaining the addition of Rs 46,62,876/-/ made by the AO on account of alleged short term capital gains without considering the fact that assessee was not the owner of the said property.

6. Ld CIT(A) erred in law as well as on facts and circumstances of the case in sustaining the addition of Rs. 14,00,000/- made by the AO u/s 69 of the Act on account of alleged investment without considering the fact that assessee was not the owner of the said property and the said property was purchased by Sh Vishnu Kumar Nakwal.

7. Ld CIT(A) erred in law as well as on facts and circumstances of the case in sustaining theabsolutely illegal and arbitrary addition of Rs.60,00,000/-made by the AO u/s 68 of the Income Tax Act treating the genuine loan transaction from M/s.Inner Mercantile Pvt. Ltd. as accommodation entry

7.2 Ld CIT(A) erred in law as well as on facts and circumstances of the case in not considering the contention of the Appellant that the office of the lender company existed at its registered office and also the notices sent were duly served upon the lender company and therefore, observation of the AO that lender company was a mere paper company was totally misplaced.

7.3 Ld CIT(A) erred in law as well as on facts and circumstances of the case in summarily rejecting the contention of the appellant that it had duly discharged the burden cast upon it of proving the identity, genuineness of the transaction and creditworthiness of the lender by filing confirmations, copy of ITR and bank account statements of the lender.

8. Ld CIT(A) erred in law as well as on facts and circumstances of the case in rejecting the contention of the appellant that the Ld Assessing Officer grossly erred in making addition of Rs 15000/ on account of hypothetical commission paid for obtaining accommodation entry.

8.1 That the Ld CIT(A) erred in law as well as on facts and circumstances of the case in not considering the contention of the appellant that the AO has not brought on record any evidence of payment of commission/arrangement of accommodation entry either during the assessment proceedings or found as a result of search.

10. Ld CIT(A) further erred in law as well as on facts and circumstances of the case in confirming the disallowance u/s 14A of the Income Tax Act made by the AO without recording proper satisfaction and without considering the submissions that no expenditure was incurred by the appellant.’’

Assessment Year 2015-16

‘’1. That the orders passed by the Ld CIT(A) and the Assessing Officer are opposed to law, natural justice, equity, weight of evidences, probabilities, facts and circumstances of the case.

2. The Ld CIT(A) has erred in law as well as on the facts and circumstances of the case in dismissing the appeal of the appellant without providing adequate opportunity and also in confirming in full the absolutely illegal, arbitrary and void ab initio order of the Ld Assessing Officer without even considering the self speaking facts of the impugned assessment order, which need no further examination of records or any other documents.

4. Ld CIT(A) erred in law as well as on facts and circumstances of the case in sustaining the addition of Rs 7,00,000/ made by the AO u/s 69 of the Act on account of alleged investment without considering the fact that assessee was not the owner of the said property and the said property was purchased by Sh Vishnu Kumar Nakwal.

4.1 Ld CIT(A) further erred in law as well as on facts and circumstances of the case in not considering the submissions that no material has been brought on record by the AO which might suggest that any investment in the property was made by the assessee and also in not considering that the investment in the said property was made by the purchaser through source verifiable banking channels only.

4.2 Ld CIT(A) erred in law as well as on facts and circumstances of the case in not considering the fact that no opportunity to cross examine Sh Vishnu Kumar Nakwal was provided to the Appellant and therefore, his statement could not have been relied upon in taking an adverse view against the appellant. 3. Ld CIT(A) erred in law as well as on facts and circumstances of the case in sustaining the addition of Rs 1,06,19,558/ made by the AO u/s 68 of the Income Tax Act.

5.1 Ld CIT(A) erred in law as well as on facts and circumstances of the case in not giving any finding on the contentions of the Appellant that no incriminating material as to the credit entry in the name of Sitaram Meena duly recorded in the Books of accounts of the assessee, was found during the course of search and thus the entire addition was bad in law.

5.2 Ld CIT(A) erred in law as well as on facts and circumstances of the case in not considering the contention of the Appellant that the said credit entry was not an unsecured loan taken from Sitaram Meena but repayment by Sitaram Meena of sums already advanced to Sh Sitaram Meena.

5.3 Ld CIT(A) erred in law as well as on facts and circumstances of the case in summarily rejecting the contention of the appellant that it had duly discharged the burden cast over it of proving the identity, genuineness of the transaction and creditworthiness of the lender by filing confirmations and bank account statements of the lender.

5.4. Ld CIT(A) erred in law as well as on facts and circumstances of the case in summarily dismissing the contentions of the appellant that the source of the monies in the Bank account of Sh Sitaram Meena was duly explained before the Assessing Officer and the addition was made only on misplaced observations.

5.5 Ld CIT(A) erred in law as well as on facts and circumstances of the case in not giving any decision on the contention of the appellant that no opportunity of cross examination of the lender was given to it before placing reliance on his statement and therefore, order passed by the AO is bad in law.

6. Ld CIT(A) erred in law as well as on facts and circumstances of the case in rejecting the contention of the appellant that the AO has grossly erred in invoking the provisions of section 115 BBE of the Income Tax Act.

7. Ld CIT(A) further erred in law as well as on facts and circumstances of the case in confirming the disallowance u/s 14A of the Income Tax Act made by the AO without recording proper satisfaction and without considering the submissions that no expenditure was incurred by the appellant.’’

Assessment Year 2016-17

‘’1. That the orders passed by the Ld CIT(A) and the Assessing Officer are opposed to law, natural justice, equity, weight of evidences, probabilities, facts and circumstances of the case.

2. The Ld CIT(A) has erred in law as well as on the facts and circumstances of the case in dismissing the appeal of the appellant without providing adequate opportunity and also in confirming in full the absolutely illegal, arbitrary and void ab initio order of the Ld Assessing Officer without even considering the self speaking facts of the impugned assessment order, which need no further examination of records or any other documents.

3.1. Ld CIT(A) has erred in law as well as on facts and circumstances of the case in completely ignoring the fact that the Assessing Officer has not recorded satisfaction about any seized paper belonging to the Assessee for the impugned Assessment Year.

4. Ld CIT(A) erred in law as well as on facts and circumstances of the case in sustaining the addition of Rs 15,89,250/ made by the AO on account of alleged undisclosed profit on sale of property without considering the fact that assessee was not the owner of the said property.

4.2 Ld CIT(A) erred in law as well as on facts and circumstances of the case in not considering the fact that no opportunity to cross examine Smt Vijay Laxmi was provided to the Appellant by the AO and therefore, her statement could not have been relied upon in taking an adverse view against the appellant.

4.3 Ld CIT(A) further erred in law as well as on facts and circumstances of the case in not giving any findings on the ground of the appellant that the Assessing Officer arbitrarily applied the provisions of Section 50C(1) of the Income Tax Act.

4.4 Ld CIT(A) further erred in law as well as on facts and circumstances of the case in recording findings of fact contrary to the assessment order in holding that Assessing officer has rightly arrived at the unexplained investment of Rs 15,89,250/- made in the name of BenamidarSmt Vijay Laxmi Verma when the AO has made addition of the identical amount on account of undisclosed profit from sale of the property.

5. Ld CIT(A) further erred in law as well as on facts and circumstances of the case in confirming the disallowance u/s 14A of the Income Tax Act made by the AO without recording proper satisfaction and without considering the submissions that no expenditure was incurred by the appellant.’’

2. First, we take up the appeal of the assessee for the assessment year 2013-14 for adjudication. Apropos Grounds of appeal of the assessee for the assessment year 2013-14, the facts as emerges from the order of the ld. CIT(A) are as under wherein the ld. CIT(A) has dismissed the appeal of the assessee.

‘’2. Here in this appeal, appellant has raised nine (9) grounds of appeal. Ground of Appeal No. 8 relating to initiation of penalty proceeding u/s 271(1)(c) is premature, therefore the same is dismissed. Ground of Appeal No. 9 is general in nature and not needing any specific adjudication. The main Ground of Appeal No. 1 to 7 (Ground of Appeal No. 2 to 2.4, Ground of Appeal No. 3 to 3.2, Ground of Appeal No. 4 to 4.4 and Ground of Appeal No. 5 to 5.4 are inter related hence they are clubbed for adjudication)is reproduced herein as under:

‘’Ground No. 1: On the facts and in the circumstances of the case, the Ld. AO has ered in passing the impugned order u/s 1 53C of the IT Act, 1961 without recording the proper satisfaction and therefore the order so passed is bad in law and deserves to be quashed.

Ground No. 2: Without Prejudice to ground no. 1 above and in the alternate

2: On facts and in circumstances of the matter, the Ld. AO has grossly erred in making addition of Rs. 1,40,75,700/- u/s 69 on account of alleged cash investment in purchase of property, arbitrarily. Thus the addition so made deserves to be deleted in full.

2.1: That the Ld, AO has further erred in making addition of Rs. 1,40,75,700/- solely based on alegedIkrar-nama (sale agreement), when in fact no such sale consideration was ever paid to the sellers on behalf of the actual purchaser Sh. PooranmalKanwat nor such agreement was ever acted upon by the parties. Thus the addition made for purchase consideration alleged as paid in cash merely on conjecture and surmises is bad in law and deserves to be deleted.

2.2: That the Ld. AO has further erred in ignoring the vital fact that the subject properties has been purchased by Sh. PooranmalKanwat through three separate registered sale deeds and there it is clearly established that the alleged sale agreement to sale was never executed and therefore no addition can be made in the hands of the assessee.

2.3: That the Ld. AO has further erred in ignoring the fact that the even as per sales agreements dated 25.05.2012 the purchase consideration was required to be paid in two installments and lastly by 20.01 .2013. however since the deal could not get materialized in the purported manner and the subject property was ultimately got transferred in the shape of agriculture land only vide sales deeds executed on 11.07.2012 which were also found during the course of search, thus it is clearly established from the seized record itself that alleged sales agreements were never acted upon and therefore any additions made based on these agreements without having any material in hand is contrary to the facts of the case and the no addition can be made in the hands of the asessee.

2.4: That The Ld. AO has further erred in not giving opportunity to cross-examination Sh. PooranmalKanwat before placing reliance on his statements for making addition which is in gross violation of principle of natural justice and accordingly the addition made deserves to be deleted.

Ground No. 3: On facts and in circumstances of the case, the Ld. AO has grossly erred in making addition of Rs. 1,34,84,685/- on account of alleged short term capital gain on sale of property arbitrarily. Thus the additions so made deserves to be deleted in full.

3.1: That the Ld. AO has further erred in making additions in the hands of the assessee while in fact the owner of the property is third person and Ld. AO has not brought on record any evidence which suggest that the sale consideration has been received by the assessee and therefore in absence of any such document no addition could have been made in the hands of the assessee.

3.2: Without prejudice to above, and in the alternate the Ld. AO has further erred adopting the full value of sale consideration of piece property sold to Smt. Sunita Mathur at Rs. 10,07,63,400/- by applying provision of section 50C(1) of the LT. Act. 1961, arbitrarily, thus the value so adopted deserves to be hold bad in law.

Ground No. 4: On facts and in circumstances of the matter, the Ld. AO erred in making addition of Rs. 3,68,874/- u/s 69 on account of alleged investment in property, arbitrarily. Thus the addition so made deserve to be deleted in full.

4.1: That the Ld. AO has further erred in making addition of Rs. 3,68.874/- solely based on some sale deeds which were in the name of Sh. Vishnu Kumar Nakwal and as per which the owner of the properties is Sh. Vishnu Kumar Nakwat only and therefore the addition made for purchase consideration alleged as paid in cash merely on conjecture and surmises is bad in law and deserves to be deleted.

4.2: That the Ld. AO has further erred in ignoring the vital fact that the subject property has been purchased by Sh. Vishnu Kumar Nakwal through registered sale deed and in any case assessee was not the purchaser even as per these sale deeds and therefore no addition can be made in the hands of the assessee.

.3: That the Ld. AO has further erred in making these addition by ignoring the fact that no evidence what so ever was found as a result of search suggesting any cash payment made by assessee. Moreover the transaction with Sh. Vishnu Kumar Nakwal has been made by banking channels and were duly recorded in assessee’s books of accounts. Thus the addition so made for purchase consideration alleged as paid in cash is bad in law and deserves to be deleted in full.

4.4: That the Ld. AO has further erred in not giving opportunity to cross-examine Sh.Vishnu Kumar Nakwal before placing reliance on his statements for making addition which is in gross violation of principle of natural justice and accordingly the addition made deserves to be deleted.

Ground No. 5: On facts and circumstances of the matter, the Ld. AO erred in making addition of Rs. 29.95.596/- u/s 69 an account of alleged investment in property, arbitrarily. Thus the addition so made deserve to be deleted in full. 5.1: That the Ld. AO has further erred in making addition of Rs. 29.55.596/- solely based on some sale deeds which were in the name of Smt. Vijay Laxmi Verma and as per which the owner of the properties is Smt. Vijay Laxmi Verma only and therefore the addition made for purchase consideration alleged as paid in cash merely on conjecture and surmises is bad in law and deserves to be deleted.

5.2: That the Ld. AO has further emed in ignoring the vital fact that the subject property has been purchased by Smt. Vijay Laxmi Verma through registered sale deed and in any case assessee was not the purchase even as per these sale deeds and therefore no addition can be made in the hands of the assessee.

5.3: That the Ld. AO has further erred in making these addition by ignoring the fact that no evidence what so ever was found as a result of search suggesting any cash payment made by assessee. Moreover the transaction with Smt. Vijay Laxmi Verma has been made by banking channels and that too in AY 2014-15 only and were duly recorded in assessee’s books of accounts. Thus the addition so made for purchase consideration alleged as paid in cash is bad in law and deserve to be deleted in full.

5.4: That the Ld. AO has further erred in not giving opportunity to cross-examine Smt.Vijay Laxmi Verma before placing reliance on his statements for making addition which is in gross violation of principle of natural justice and accordingly the addition made deserves to be deleted.

Ground No.6: On fact and in circumstances of the case the Ld. AO has grossly erred In disallowing the expenses claimed at Rs 3,55,714/-in the profit and loss account by assuming that assessee company has not commenced any business activity and these expenses are in the nature of capital expenses, which is contrary to the facts of the case and without any material in possession of the Ld. AO and therefore the disallowance so made should be allowed to the assessee company.

Ground No. 7: On facts and in circumstances of the matter the Ld. AD has grossly erred in invoking the provision of section 115BBE of the IT. Act, 1961.’’

3. During the course of appellate proceedings, appellant has not complied with the notices issued on various dates, the details of which are reproduced herein as under: