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2022 (6) TMI 482 - AT - Income TaxValidity of Assessment u/s 153C - proof of incrementing material found in search or not? - objective satisfaction of documents belong to the assessee or not? - HELD THAT:- Section 153C of the Act shall come into play only, when the A.O. of the searched person comes to an objective “satisfaction” that the documents found during the course of search do not belong to the searched person. In that case, he would not be considering those documents for making any addition in the hands of the searched person. AO of the searched person has to record his satisfaction that the documents do not belong to the searched person and then transfer those documents to the A.O. having jurisdiction over the ‘other person’ to whom the said document belong/pertain to. In the instant case, we noticed that there is merit in the contention of Ld A.R that the A.O. of the searched person Shri Somashekhar Reddy has not come to an objective satisfaction that the impugned documents belong to the assessee herein. This is evident from the fact that the AO of Shri Somashekara Reddy has assessed the investments found in those documents in the hands of Shri Somashekara Reddy. The addition should be made in the hands of other person to whom the documents belong/pertain to and this is the whole concept of sec.153C of the Act. Once these documents have been accepted to belong to the searched person and further the AO has assessed the investments found in the said documents in the hands of the searched person, the question of considering the same as belonging/pertaining to some other person will not arise. Hence the so called satisfaction recorded by the AO of the searched person can only said to be a mechanical satisfaction and not objective satisfaction as contemplated in sec.153C of the Act. It is a case of mechanical transfer of the impugned documents to the assessing officer of the assessee herein. We also noticed earlier that the AO of the assessee herein has not made any addition on the basis of the above said documents, ‘which are said to belong to the assessee herein’. This factfurther reinforces our view that, in the facts and circumstances of the case discussed above, there was no objective satisfaction as contemplated u/s 153C of the Act. Accordingly, we find merit in the contentions of the assessee that the very initiation of proceedings u/s 153C of the Act in the hands of the assessee for assessment year 2007-08 is not in accordance with the law and hence the assessment order is liable to be quashed. Addition of unproved trade liability - assessee could not effectively furnish the details to prove the trading liabilities - It is well settled proposition of law that the apprehension, howsoever strong, cannot substitute material evidences. In so far as the trading liabilities are concerned, it could be assessed only u/s 41(1) of the Act, when it ceases to exist. In our considered view, the inference drawn by the AO was that the suppliers of services are not having enough means to provide credit to the assessee. However, the AO himself was not aware of the details about the suppliers of the services. Without those details, we are unable to understand as to how the AO could have entertained such kind of views. We also notice that the A.O. has not established that the liability has ceased to exist, which would warrant invoking of provisions of section 41(1) of the Act. Accordingly, in our view, the A.O. was not justified in treating part of liabilities,as unproved on presumptions, surmises and conjectures. There are lacunae on the part of the assessee also, i.e., the assessee also could not furnish books of accounts and other details, since they have been seized by other statutory authorities. Hence, the action of the A.O. making addition could not found fault with altogether. The only point is that the quantum of addition determined by the AO is not supported by any evidence and it has been made on presumptions only. In view of the deficiency on the part of the assessee, in our view, some addition is called for in order to take care of deficiencies, if any. Since the assessee could not furnish information and explanations relating to trading liabilities outstanding as on 31.3.2008 before the A.O., we are of the view that this issue could be resolved by making addition on estimated basis in order to take care of revenue leakage if any. As noticed that the assessee has surrendered a sum of Rs.1.00 crore in order to take care of deficiencies in the maintenance of books of accounts and the assessee has already offered the same. Accordingly, we are of the view that this issue would meet ends of justice, if the addition made by the A.O. is restricted to Rs.50 lakhs and the same, in our view, would take care of further deficiencies, revenue leakages, if any, in the maintenance of books of accounts.
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