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2012 (3) TMI 397 - AT - Income TaxAddition on protective basis - income from undisclosed sources - credit entries supposedly in the name of the appellant found mentioned in the seized note books/ diaries of one Shri Ramnik Chawda - satisfaction u/s 158BD - Held that - (i) Assessee s stand was examined in the course of block assessment of RC, there also he denied having any connection with the diaries cash entries made in the handwriting of RC. (ii) During the course of search in RC s premises and in subsequent search of the assessee s premises, no corroborative incriminating evidence was found to suggest such cash payments or assets of said firm M/s Dev Yogi Developers. . (iii) Lower authorities have solely relied on various uncorroborated evidence including the fact that in the diary two cheuqe entries match with assessee s record in respect of his capital contribution in the firm M/s Dev Yogi Developers, therefore, it is to be inferred that all the cash entries mentioned in RC s seized diary belonged to the assessee. Had the paper been in the handwriting of assessee, this presumption could have some relevance, but with stark reality of the diary being written in the hand of RC and found in his premises during the course of search; in our view, such inferences are shaky and have no legs to stand except creating a suspicion. (iv) The statutory presumption u/s 132(4A) has been raised against RC and addition confirmed in his hands by block assessment u/s 158BD. (v) The assessee had withdrawn from the firm M/s Dev Yogi Developers in April 1997 and RC was search on 4/5 Sept. 1997. Assessee on all forums contended that he was not comfortable with the partnership, which is corroborated by the fact that cheques issued by RC bounced. On measures of preponderance of probabilities also the statement of RC which is not even believed by his AO, cannot implicate the assessee without there being a corroborative evidence. There cannot be a protective assessment on the basis of above assumptions and facts with a bald direction that if the addition is not made in the hands of RC, the same should be added in the hands of the assessee. (vi) On framing of protective assessment u/s 143(3) also the argument of ld. counsel merits credence. The special provisions of the Act prescribe an assessment based on searched material itself and vests power in AO to initiate proceedings u/s 158BD read with sec. 158BC in the hands of other persons. Thus, the AO has to record satisfaction either to the effect that the seized material belonged to the searched person or the other person. In the light of foregoings, we delete the addition
Issues Involved:
1. Validity of the protective addition of Rs. 83,00,000 during assessment u/s 143(3) based on search material. 2. Addition of Rs. 2,00,000 as income from a gift. Detailed Analysis: 1. Validity of the Protective Addition of Rs. 83,00,000: Admission of Additional Grounds: - The assessee contended that the additional grounds raised were purely legal and did not require verification of new facts. The Supreme Court judgment in NTPC (229 ITR 383) was cited to support the admission of these grounds. - The Tribunal admitted the first additional ground as it was purely legal and went to the root of the issue about the assessability of the amount under section 143(3). The second additional ground was not admitted as it required verification of facts and the assessee had accepted this addition before the Assessing Officer (AO). Assessment Proceedings and AO's Findings: - The AO received information from DIT (Inv.), New Delhi, indicating that during a search operation at the premises of one Shri Ramnik Chawda (RC), documents concerning the assessee were seized. Based on these documents, the AO made a protective addition of Rs. 83,00,000 in the hands of the assessee. - The AO treated the amount as unexplained deposits from undisclosed sources, relying on entries in RC's seized diary and statements made by RC during the search. Assessee's Arguments: - The assessee argued that the addition was based solely on entries in RC's diary without any corroborative evidence. - It was contended that the addition should have been made in RC's hands under section 68 and not in the assessee's hands on a protective basis. - The assessee also highlighted that no evidence was found during the search at the assessee's premises to contradict his statements. CIT(A)'s Observations: - The CIT(A) confirmed the addition, reasoning that if the cheque payments recorded in RC's diary were treated as genuine, the cash deposits should also be treated as genuine. - The CIT(A) noted that the appellant did not provide any new material to rebut the AO's argument and failed to explain the source of the investment. Tribunal's Analysis: - The Tribunal examined the provisions of Chapter XIV-B, which prescribes a special procedure for assessment of undisclosed income resulting from search operations. It was noted that the AO of the searched person (RC) was required to record satisfaction that the seized material indicated undisclosed income of another person and hand over the material to the AO of that other person. - The Tribunal observed that the AO of RC did not record such satisfaction or follow the mandatory procedure under section 158BD. Consequently, the addition could not be made under section 143(3). - The Tribunal relied on judicial pronouncements, including CIT vs. Ravi Kant Jain (250 ITR 141), CIT vs. Dr. M.K.E. Menon (248 ITR 310), and Manish Maheshwari vs. ACIT (289 ITR 341), which emphasized that the special procedure for block assessment under Chapter XIV-B must be followed. Decision on the Protective Addition: - The Tribunal held that the addition of Rs. 83,00,000 could not be made in the hands of the assessee on a protective basis under section 143(3). The additional ground raised by the assessee was allowed. Merits of the Addition: - The Tribunal further examined the merits of the addition and found that there was no corroborative evidence to support the cash entries in RC's diary. - It was noted that the assessee had denied any connection with the cash entries, and no incriminating evidence was found during the search at the assessee's premises. - The Tribunal concluded that the addition was based on assumptions and lacked corroborative evidence. Therefore, the addition of Rs. 83,00,000 was deleted on merits. 2. Addition of Rs. 2,00,000 as Income from a Gift: - The Tribunal did not admit the additional ground related to the addition of Rs. 2,00,000 as it required verification of facts and the assessee had accepted this addition before the AO. - Consequently, the addition of Rs. 2,00,000 was confirmed. Conclusion: - The assessee's appeal was partly allowed. The addition of Rs. 83,00,000 was deleted, while the addition of Rs. 2,00,000 was confirmed. - The order was pronounced in open court on 22-03-2012.
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