Recently, The Ahmedabad bench of the Income Tax Appellate Tribunal (ITAT) quashed an order passed under section 153C of the Income Tax ACT 1961 (ITA) against assessee for the assessment year (A.Y) 2008-09 noting that the Assessing Officer ( AO ) lacked jurisdiction to initiate the said assessment proceeding.
The backdrop of the case is that a search under Section 132 of the ITA was carried out in Suraj Group, the assessee, on 18.12.2013. Certain incriminating documents belonging to the assessee were found during the search proceedings.
The AO, upon receiving the seized documents, initiated proceedings under Section 153C of the ITA against the assessee for the A.Y. 2008-09 by issuing notice under Section 153C of ITA on 11.01.2016.
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It should be noted that by the time this proceeding was initiated, the assessee company was legally non- existent, as it had merged with another entity.
The assessment was completed under Section 143(3) read with section 153C of the ITA on 29.03.2016, with total income estimated at Rs.11.06 Crores.
However, the assessee had filed an e-return on 20.01.2016 declaring Nil income, two months before the completion of the assessment.
The AO, on the basis of the seized documents, made an addition of 11 Crores on the income of the assessee under section 68 of the ITA, labeling it as unexplained share application money.
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Aggrieved , the assessee filed an appeal against this order before the First Appellate Authority, which was decided by the Commissioner of Income Tax (Appeals) [CIT(A)] .
The assessee submitted that the AO has erred while framing the assessment under section 143(3) read with section 153C of ITA, as the notice issued under section 153C of the ITA was upon a legally non-existent company.
Thus, it was argued that the impugned order deserves to be quashed/canceled as it was void-ab-initio (Invalid from the beginning).
It was also submitted that the AO was erroneous in making the addition under section 68 of ITA in absence of any incriminating material indicating any unaccounted investment by the appellant company.
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The CIT(A), after examining the contentions, deleted the addition of Rs.11 Crore in respect of share application money by holding that the addition was not based on any incriminating material found during the search.
Aggrieved, the Revenue appealed against the above decision before the ITAT.
The Counsel for the Revenue/ Appellant submitted that the CIT(A) erred in holding that the additions made by AO were not based on any material seized during the search proceedings, without appreciating the fact that books of accounts were seized during the search and addition was made only on the basis of such incriminating seized materials.
The Revenue also argued that deleting the addition of share application money of ₹ 11,00,00,000/- under section 68 of the ITA was erroneous as well.
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The bench of Mr TR Senthil Kumar and Mr Narendra Prasad Sinha, after hearing the contentions, observed that the block period for the proceedings under Section 153C of the ITA have to be computed from the date of receipt of books of accounts/ seized documents by the AO, as upheld by the Supreme Court in the case of CIT vs. Jasjit Singh (supra).
It was noted that there was no ambiguity that for the proceedings under Section 153C of the ITA, the year of search shall be substituted by the year of receipt of seized documents by the AO, and thereafter the period of six years has to be counted backwards from that year.
In the case at hand, seized documents were deemed to be transferred to the AO in Financial Year (F.Y) 2015-16 relevant to A.Y. 2016-17.
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Therefore, the proceeding under section 153C could have been only validly initiated in the case of the assessee for the six years preceding the A.Y. 2016-17, that is, for the A.Y.2015-16 to A.Y.2010-11 .
Thus, the tribunal observed that the proceeding initiated under section 153C of the ITA in this case was not in accordance with the law as laid down by the Supreme Court.
Consequently, the tribunal held that the AO had no jurisdiction to initiate proceedings under Section 153C of the Act for the A.Y. 2008-09, as it was beyond the permissible period of six years from the date of recording of satisfaction of the AO.
Therefore, the assessment order passed under section 153C of ITA for the A.Y. 2008-09 was quashed and in essence, the CIT (A)’s order was upheld.
In result, the appeal preferred by the Revenue was dismissed.
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