Issuance of Notice u/s 153C of Income Tax Act shall be Invalid Ab-Initio when no Incriminating Document found in Search: ITAT [Read Order]

The Delhi bench of the Income Tax Appellate Tribunal (ITAT) held that the issuance of notice under Section 153C of the Income Tax Act, 1961 shall be invalid ab-initio when there is no incriminating material found during the search.

A search and seizure operation was carried out under Section 132(1) of the Income Tax Act in M/s. Apple Group of Companies wherein certain incriminating material was found and seized belonging to the assessee. Notice under Section 153C of the Income Tax Act was issued to the assessee in response to which the assessee filed its return declaring a loss of Rs. 17,604/-.

The Assessing Officer completed the assessment under Section 153C read with Section 143(3) of the Income Tax Act by making an addition of Rs. 7,55,40,000/- on account of unverified share capital.

The Commissioner of Income Tax (Appeal) [CIT(A)] held that notice under Section 153C of the Income Tax Act issued by the Assessing Officer (AO) needs to be treated as ab initio invalid and legally not sustainable and therefore, he quashed the assessment framed on the basis of legally unsustainable notice under Section 153C of the Income Tax Act.

In PCIT v. Sinhgad Technical Education Society (2017) the law was crystal clear that the issue of notice under Section 153C of the Income Tax Act without incriminating material for the relevant AY is legally not sustainable.

The CIT(A) found that no satisfaction note is recorded by the AO of searched persons to establish the fact that the specific seized document indeed belonged to the assessee company. The CIT(A), revealed that neither they belong to the assessee company nor they are of incriminating nature and that the AO has not made any additions on the basis of these seized documents.

The Two-member bench comprising of BRR Kumar (Accountant member) and Astha Chandra (Judicial member) held that the addition was not based on any incriminating document found as a result of the search. Therefore, the order of the CIT(a) was upheld and the appeal of the revenue was dismissed. 

To Read the full text of the Order CLICK HERE

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