2011 (4) TMI 1348 - AT - Income Tax

Assessment made u/s 153C r.w.s. 153A - Validity of Order Passed u/s 153C rws 143(3) - Unfettered Powers of AO - Incriminating Documents found pertaining to the third party - Documents were seized from a employee looking after the accounts of assessee s trust - AO after satisfying himself about the invocations of provisions of section 153C issued a notice HELD THAT - In SINHGAD TECHNICAL EDUCATION SOCIETY VERSUS ACIT CENTRAL CIRCLE 2 (2) PUNE 2011 (4) TMI 871 - ITAT PUNE it was held AO shall not possess unfettered powers of summarily opining or reopening the concluded assessments of all the six assessment years in respect of the third party mentioned in section 153C without having in possession the AY-specific incriminating documents/other listed items. Settled assessments must not be disturbed merely based on the dumb documents gathered and seized by the revenue. It is the decision of this bench of the Tribunal taken relying on the decision of the Tribunal ie in the case of LMJ INTERNATIONAL LIMITED. VERSUS DEPUTY COMMISSIONER OF INCOME-TAX. 2007 (12) TMI 237 - ITAT CALCUTTA-E that where nothing incriminating is found in the course of search relating to any assessment year the assessments for such years cannot be distributed. Thus the assessments made by the AO u/s 153C of the Act without the existence of AY-specific incriminating documents are invalid. In present case based on the existence of the seized documents these six AYs can categorized into two categories AYs without seizure of any documents - In the present case regarding AYs 2000-01 to 2003-04 2005-06 admittedly there is no seizure of the documents thus issuance of notices u/s 153C is invalid. AY with the seizure of some documents - For AY 2004-05 admittedly there is some seizure of the documents. We are convinced that the said ledger is an accounted one. Mere appearance of names does not mean anything as section 153C is intended for taxing the undisclosed income of the third party based on the material/others seized during the search action. The documents the ledger in the instant case relevant for the AY 2004-05 with no financial implications can neither be considered incriminating nor be considered capable of springing satisfaction to any AO that there is scope of undisclosed income in respect of the third party assasable u/s 153C of the Act. Accordingly the legal grounds raised by assessee relating to the validity of the notice u/s 153C are allowed in favour of the assessee in respect of all the AYs under consideration. Review of Power of CIT u/s 263 - Validity of Order passed by AO u/s 263 rws 153C rws 143(3) - HELD THAT - We have upheld the invalidity of the notices issued u/s 153C and in effect we hold that the orders passed u/s 153C r w s 143(3) by the AO for the AYs under consideration are held to be null and void. Consequently the assessment orders reviewed by the CIT u/s 263 are null and void and therefore the review order of the CIT also becomes null and void.

Issues Involved:
1. Validity of notice issued under Section 153C.
2. Applicability of Section 10(23C) versus Section 11 for exemption claims.
3. Entitlement to exemption under Section 11.
4. Treatment of donations received towards the corpus of the trust.
5. Treatment of donations received towards the hospital equipment fund.
6. Requirement to file Form No. 10 with the return of income.
7. Deduction for repayment of liability of the trust.
8. Allowance of 25% of income to be set apart.
9. Application of income for capital expenditure.
10. Grant of depreciation.
11. Denial of exemption under Section 11.
12. Denial of deduction under Section 80L.
13. Chargeability of interest under Section 234B.

Detailed Analysis:

1. Validity of Notice Issued Under Section 153C:
The primary issue was whether the notice issued under Section 153C was valid. The Tribunal found that the documents seized during the search were not incriminating and were already accounted for in the assessee's books. The Tribunal emphasized that for invoking Section 153C, there must be incriminating evidence found during the search. The Tribunal referred to the satisfaction note and concluded that the ledger seized for AY 2004-05 was not incriminating. Consequently, the Tribunal held that the notices issued for AYs 2000-01 to 2003-04 and 2005-06 were invalid, as there were no incriminating documents for these years.

2. Applicability of Section 10(23C) versus Section 11 for Exemption Claims:
The Tribunal did not specifically address this issue in the detailed analysis, as the primary focus was on the validity of the notice under Section 153C.

3. Entitlement to Exemption Under Section 11:
The Tribunal noted that the CIT(A) denied the exemption under Section 11, citing violations of Sections 13(1)(d) and 11(5). However, since the Tribunal found the notice under Section 153C invalid, the assessments made under this notice were also invalid.

4. Treatment of Donations Received Towards the Corpus of the Trust:
The Tribunal noted that the CIT(A) confirmed the addition of Rs. 31,25,000 received through coupons, which the assessee claimed was towards the corpus of the trust. The Tribunal did not delve into the merits of this issue due to the invalidity of the notice under Section 153C.

5. Treatment of Donations Received Towards the Hospital Equipment Fund:
The Tribunal noted the CIT(A)'s confirmation of the addition of Rs. 97,50,000, which the assessee claimed was towards the hospital equipment fund. Again, the Tribunal did not address the merits due to the invalidity of the notice under Section 153C.

6. Requirement to File Form No. 10 with the Return of Income:
The Tribunal noted that the CIT(A) denied exemption under Section 11 because Form No. 10 was not filed with the return. However, this issue became moot due to the invalidity of the notice under Section 153C.

7. Deduction for Repayment of Liability of the Trust:
The Tribunal noted the CIT(A)'s denial of the deduction of Rs. 7,47,475 for repayment of liability. This issue was not addressed on merits due to the invalidity of the notice under Section 153C.

8. Allowance of 25% of Income to be Set Apart:
The Tribunal noted the CIT(A)'s denial of the benefit of setting apart 25% of the income. Again, the merits were not addressed due to the invalidity of the notice under Section 153C.

9. Application of Income for Capital Expenditure:
The Tribunal noted the CIT(A)'s denial of the application of income for capital expenditure of Rs. 16,67,410. This issue was not addressed on merits due to the invalidity of the notice under Section 153C.

10. Grant of Depreciation:
The Tribunal noted the CIT(A)'s denial of depreciation. This issue was not addressed on merits due to the invalidity of the notice under Section 153C.

11. Denial of Exemption Under Section 11:
The Tribunal noted the CIT(A)'s denial of exemption under Section 11. However, this issue became moot due to the invalidity of the notice under Section 153C.

12. Denial of Deduction Under Section 80L:
The Tribunal noted the CIT(A)'s denial of deduction under Section 80L. This issue was not addressed on merits due to the invalidity of the notice under Section 153C.

13. Chargeability of Interest Under Section 234B:
The Tribunal noted the CIT(A)'s decision on the chargeability of interest under Section 234B. This issue was not addressed on merits due to the invalidity of the notice under Section 153C.

Conclusion:
The Tribunal allowed the appeals of the assessee for all the years under consideration due to the invalidity of the notices issued under Section 153C. Consequently, the assessments made under these notices were also held to be invalid. The Tribunal did not address the merits of the other grounds raised by the assessee, as the primary issue of the validity of the notice under Section 153C was decided in favor of the assessee.

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