Failure to make a note in file of person searched does not vitiate proceedings u/s 153C of Income Tax Act: ITAT [Read Order]

The Bangalore bench of the Income Tax Appellate Tribunal ( ITAT ) observed that failure to make a note in file of person searched does not vitiate proceedings under Section 153C of Income Tax Act, 1961.

The Commissioner of Income Tax ( Appeals ) noted that the assessee did not raise any objections regarding this matter before the Assessing Officer ( AO ) and submitted their income tax return on 23rd September 2011 following the issuance of a notice under section 153C. The AO accepted the total income as declared by the taxpayer. Considering that all the stipulations of Section 153C of of Income Tax Act, 1961, were fulfilled, the Commissioner of Income Tax ( Appeals ) affirmed the validity of the AO's jurisdiction in this case.

The Commissioner of Income Tax ( Appeals ) noted that the appellant had disclosed Rs. 75 lakhs as supplementary income in a statement provided to the Investigating Officer, based on a claimed expense of Rs. 1,52,98,796/- which couldn't be substantiated. Out of this, Rs. 75 lakhs was mutually agreed upon as additional income. However, when the appellant filed their income tax return on 23rd September 2011, they declared only Rs. 17,18,109/- as additional income after asserting an additional expense of Rs. 57,81,981/-. The Assessing Officer evaluated this without making any additions. Nonetheless, the appellant was appealing this decision before the Commissioner of Income Tax ( Appeals ).

The Counsel for the assesse Ramesh, noted that, as evident from the aforementioned details, an additional income of Rs. 75 lakhs was disclosed for taxation based on the findings of seized materials. Moreover, in the income tax return filed on 23rd September 2011, only Rs. 53,40,927 was declared for taxation ( inclusive of Rs. 20,01,952/- attributed to non-allowable provisions ).

The supplementary income declared due to the search proceedings was prompted by the discovery that a claim of Rs. 1,52,98,796/- attributed to layout formation expenses lacked substantiation. The appellant failed to provide bills and vouchers to support this claim before the Commissioner of Income Tax ( Appeals ), leading to the acknowledgment of an additional income of Rs. 75 lakhs, along with Rs. 16,20,956/- for the Assessment Year 2006-07.

The Commissioner of Income Tax ( Appeals ) noted that the appellant argued before him that the income declared in the income tax return is significant when compared to the total turnover, with 8% purportedly being the accepted norm. However, it was observed that the appellant is engaged in the business of procuring, developing, and selling sites, which cannot be equated with the construction business. Unlike construction, the primary focus here was the sale of land, where profits are typically multiples of the investment and cannot be benchmarked against a fixed percentage like 8% or any other standard used in the construction industry.

The two member bench of the tribunal comprising Madhumitha Roy ( Judicial member ) and Chandra Poojari ( Accountant member ) observed that Failure by the Assessing Officer of the searched individual to document this transmission in the searched individual's file, despite sending the satisfaction note and documents to the Assessing Officer of the other person, will not invalidate the proceedings under Section 153C of Income Tax Act, 1961, against the other person. However, it's mandatory for the satisfaction note to affirm that the seized documents from the searched individual pertain to the other person and to transmit such materials to the Assessing Officer of the other person.

However, the bench concluded that the Assessing Officer ensured that he was convinced and satisfied that the seized documents from the searched individual indeed pertained to the other person. In that scenario, the satisfaction note was related to the other person. The second requirement of transmitting the seized documents from the searched individual was unnecessary because the Assessing Officer was the same for both the searched individual and the other person, eliminating the need to transmit such documents to himself.

In the result, the appeal of the assessee was dismissed.

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