Brief of the Case
Delhi High Court held In the case of CIT vs. M/s Refam Management Services (P) Ltd. that under Section 153C the assessment or reassessment of income of a person other than a searched person would proceed in accordance with the provisions of Section 153A. The concluded assessments cannot be interfered with under Section 153A unless the incriminating material belonging to the Assessee has been seized. In the present case, the documents seized had no relevance or bearing on the income of the Assessee for the relevant assessment years and could not possibly reflect any undisclosed income. This being the undisputed position, no investigation was necessary. Hence proceedings u/s 153C is not valid.
Facts of the Case
Search and seizure operations were undertaken under Section 132 in the case of Sh. B.K. Dhingra, Smt. Poonam Dhingra and M/s Madhusudan Buildcon Pvt. Ltd. on 20th October, 2008. Certain documents belonging to the Assessee Company were seized during the search. The AO of the Assessee recorded a ‘Satisfaction Note’ on 5th July, 2010 to the effect that the documents seized belonged to the Assessee and, hence, Section 153C was invokeable. On the aforesaid basis, proceedings were initiated under Section 153C and a notice dated 6th July, 2010 for the AY 2003-04 was issued to the Assessee. The Assessee, in compliance with the notice issued under Section 153C , filed its returns of income under protest.
Subsequently, notices under Section 142(1)/143(2) were also issued for the purpose of assessing the income of the Assessee with respect to AY 2003-04. During the assessment proceedings, it was observed that the Assessee had purchased and sold textile goods and fabrics and it was called upon to provide evidence of purchases and was further directed to provide the details of payments (by cash or cheque). Finaly the AO concluded that the Assessee was unable to substantiate any purchase of stocks and, therefore, made addition of the amounts reflected as purchases under Section 69C. The AO also disallowed 100% of the expenses claimed by the Assessee in its P & L Account concluding that they were unverifiable.
Contention of the Assessee
The ld counsel of the assessee submitted that the AO had no jurisdiction to make an assessment under Section 153C as no relevant material belonging to the Assessee had been found during the search conducted under Section 132 on B.K. Dhingra, Poonam Dhingra and Madhusudan Buildcon Pvt. Ltd. He submitted that in absence of any incriminating material, proceedings under Section 153C could not be initiated. In addition, he submitted that the proceedingsin respect of AY 2003-04 and AY 2004-05 were beyond the period of six years from the end of financial year preceding the year in which satisfaction under Section 153C was recorded and, thus, outside the scope of Section 153C.
Contention of the Revenue
The ld counsel of the revenue submitted did not dispute that the substantial question of law as suggested by ld counsel of the assessee also arose in these matters. Accordingly, the parties were also heard on the following question of law which arises from the impugned order passed by the Tribunal:- Whether the AO had jurisdiction to assess and reassess the income of the Assessee under Section 153C in respect of AYs 2003-04 to 2008-09?
Held by CIT (A)
The CIT (A) allowed the appeal of the Assessee with regard to the disallowance of purchases under Section 69C and observed that Section 69C applies only when there is some expenditure and the Assessee is unable to explain the source from which such expenditure has been incurred. The CIT (A) held that the Assessee had accounted for all the purchases made in cash in its books of accounts and, thus, the source of the expenditure could not be stated to be unexplained. The CIT (A) also deleted the addition made by the AO on account of 100% disallowance of expenditure.
Held by ITAT
The Tribunal upheld the view of CIT (A) that an addition under Section 69C was not sustainable and, accordingly, by an order dated 26th August, 2014, rejected the appeals preferred by the Revenue. The Tribunal also agreed with the decision of the CIT (A) regarding deletion of 100% disallowance of expenditure and depreciation claimed by the Assessee.
Held by High Courts
It is apparent that the only document seized during the search in question was a cheque book pertaining to the Assessee which reflected issue of cheques during the period August 2008 to October 2008, relevant to the AY 2009-10. The facts and the questions of law that arise in these appeals are similar to the facts and the controversy involved in RRJ Securities Ltd. ITA 164/2015 dated 30-10-2015. It was held that under Section 153C the assessment or reassessment of income of a person other than a searched person would proceed in accordance with the provisions of Section 153A. The concluded assessments cannot be interfered with under Section 153A unless the incriminating material belonging to the Assessee has been seized. In the present case, the documents seized had no relevance or bearing on the income of the Assessee for the relevant assessment years and could not possibly reflect any undisclosed income. This being the undisputed position, no investigation was necessary. Thus, the provisions of section 153C, which are to enable an investigation in respect of the seized asset, could not be resorted to; the AO had no jurisdiction to make the reassessment under Section 153C.
Thus, for the reasons stated in the case of RRJ Securities Ltd. 164/2015 dated 30-10-2015, the question, whether the proceedings under Section 153C could be initiated against the Assessee, is answered in negative i.e. in favour of the Assessee and against the Revenue.
Accordingly appeal of the revenue dismissed.