INCOME TAX ACT, 1961

Search and seizure- Assessment under section 153C-Notice under section 153C not based on seized material-Assumption of jurisdiction

Assessee was an educational institution registered under section 12A(a). A search and seizure operation was carried out in respect of an individual who was the president of the assessee-institution. Certain loose papers were found and seized during search operation. On the basis of notings found in said loose papers CIT(A) discovered that capitation fees/donations were being received. Therefore, CIT(A) cancelled the registration of the assessee on ground that activities of the assessee were not genuine and they were not being carried on in accordance with the object of the trust. AO issued notices under section 153C to the assessee after recording its satisfaction for the same. Then, the income of assessee was re-assessed. The assessee filed instant appeal against said assessment order, with a submission that AO could not assume jurisdiction under section 153C in the absence of any incriminating information or transactions relating to any of the impugned four assessment years. Held: The satisfaction recorded by AO was noticed very closely and it was found that the impugned reasons mentioned by AO were silent insofar as any assessment year unaccounted or undisclosed or hidden information to the revenue by the assessee. AO had narrated some information against the HUF of president, which was not relevant for the present assessee. AO totally missed the requirements of the law i.e. only the assessment year with the pending assessments and the assessment year with the `assessment year specific incriminating documents/transactions` or seized asset should only be reopened under the provisions of the first proviso to section 153A and not otherwise. [Para 9]

The reasons recorded by AO did not contain anything incriminating for the relevant assessment years. It was the settled position of the law based on the decision of the Tribunal in the case of LMJ International Ltd. v. Dy. CIT [2008] 22 SOT 315 (Kol.) that the issue of notice under the provisions of the first proviso to section 153A(1) is not automatic and there is need for assessment year-specific incriminating information (ASII) in the possession of AO to be the fountain head for springing satisfaction to him that there existed some income or asset to be assessed in the hands of any other person, who were referred to in section 153C. In the present case it was not fair to reopen the assessment which was already concluded without any reason or logic thereby encroach on the right of the taxpayers. AO should not be given unfettered or arbitrary powers to issue notice for the six assessment years specified in the first proviso to section 153A(1) when the impugned assessments for the said six assessment years were otherwise reached finality after due process of law. In this case, there was no mention of any document in the said reasons relatable to the impugned four years and the incriminating nature of the same was out of issue. [Para 11]

Hence, the appeal of the assessee was allowed. [Para 15]