By TIOL News Service

MUMBAI, NOV 18, 2016: THE ISSUE IS - Whether assessment framed u/s 153C without recording satisfaction by the AO of searched person and / or without finding incriminating material, is sustainable in law – NO: ITAT

Facts of the case:

A search & seizure action u/s.132(1) was carried out in the business premises of M/s. F Group of companies as well as in the residential premises of the Directors of the group. During the course of search unaccounted cash and documents were found and accordingly appropriate assets / documents were seized. Assessee is one of the group company. Consequent to the search & seizure action, notices u/s.153C were issued and assessments u/s.153C r.w.s. 143(3) were completed for AYrs.2004-05 and 2005-06. During the course of scrutiny assessment, AO made addition on account of share capital by observing that assessee could not substantiate genuineness of transaction and source of fund. CIT(A) confirmed the action of the AO.

On appeal, the ITAT held:

++ the issue with regard to addition without finding any incriminating material has been dealt by ITAT in the group case of assessee M/s. Bermaco Energy Systems Ltd., wherein ITAT has held that once a search takes place under Section 132 of the Act, notice under Section 153A(1) will have to be mandatorily issued to the person searched requiring him to file returns for six AYs immediately preceding the previous year relevant to the AY in which the search takes place.Assessments and reassessments pending on the date of the search shall abate. The total income for such AYs will have to be computed by the AOs as a fresh exercise.The AO will exercise normal assessment powers in respect of the six years previous to the relevant AY in which the search takes place. The AO has the power to assess and reassess the 'total income' of the aforementioned six years in separate assessment orders for each of the six years. In other words there will be only one assessment order in respect of each of the six AYs "in which both the disclosed and the undisclosed income would be brought to tax".Although Section 153A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search material or information available with the AO which can be related to the evidence found, it does not mean that the assessment "can be arbitrary or made without any relevance or nexus with the seized material. Obviously an assessment has to be made under this Section only on the basis of seized material. In absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word 'assess' in Section 153A is relatable to abated proceedings (i.e. those pending on the date of search) and the word 'reassess' to completed assessment proceedings;

++ insofar as pending assessments are concerned, the jurisdiction to make the original assessment and the assessment under Section 153A merges into one. Only one assessment shall be made separately for each AY on the basis of the findings of the search and any other material existing or brought on the record of the AO.Completed assessments can be interfered with by the AO while making the assessment under Section 153A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment. For the assessment year 2004-2005, notice u/s.143(2) was required to be issued by 31/10/2005 and for the assessment year 2005-06 by 31/10/2006, however, no such notice was issued till the date of search on 31/10/2009. No notice u/s.148 was issued for reopening of the assessment. The documents referred and attached to the remand report are (i) computation of income for assessment year 2009-2010 and (ii) copy of balance sheet as on 31/03/2009 which are prepared on the basis of regular books of accounts maintained by the assessee company and the same were not at all in incriminating nature. Even from the statement of the Director, recorded u/s. 132(4), it is very clear that no such facts have been recorded on the issue of share capital money received by the Appellant Company as mentioned by the AO. Inspiteof requests by the assessee, AO has not furnished copy of the satisfaction note to the assessee. Therefore, there is no merit for the assessment framed u/s.153C / addition made without recording satisfaction by the AO of searched person and / or without finding incriminating material.

(See 2016-TIOL-1980-ITAT-MUM)