ITAT Upholds Section 153C Jurisdiction Based on Seized Material:

Rainbow Foundation Ltd. is engaged in real estate development and sale of apartments and was subjected to assessment proceedings under Section 153C of the Income Tax Act, 1961, for Assessment Year 2012–13 following search and seizure operations conducted on 21 April 2016. During the search, loose sheets and other documents were seized from the premises of R.V. Raajah, who allegedly acted as a broker in the sale of the Padmanabha Theatre property by Rainbow Foundation Ltd. to Rathnapuri Constructions Pvt. Ltd. In his statement recorded under Section 132(4), Raajah stated that the total consideration for the property was Rs 27 crore, of which Rs 13.53 crore was paid in cash and the remaining amount through cheque. 

The AO completed the assessment under Section 143(3) read with Section 153C on 31 December 2018, determining the total income at Rs 14,06,35,460 after adding Rs 13.53 crore as undisclosed on-money consideration. The CIT(A), however, deleted the addition.

The Tribunal observed that the CIT(A) had proceeded on an incorrect factual assumption regarding the date and existence of the satisfaction note recorded by the AO of the searched person. The Tribunal held that once the AO of the searched person records satisfaction that seized material relates to a third party and the material, along with the satisfaction note, is handed over to the third party’s AO, jurisdiction under Section 153C may validly be assumed. At the stage of issuing the notice, conclusive proof of undisclosed income escaping assessment is not required.

The Tribunal also found that the CIT(A) had failed to adequately consider the evidentiary value of the statements recorded under Section 132(4) as well as the seized documents indicating receipt of the alleged on-money consideration. Accordingly, the Tribunal reversed the CIT(A)’s findings, restored the assessment order making the addition of Rs 13.53 crore, and allowed the Revenue’s appeal.