2014 (7) TMI 1145 - AT - Income Tax

Validity of proceeding u/s 153C - unexplained credit u/s 68 - Held that - On the date notice was issued u/s 153C of the Act, there is no assessment proceeding pending before the assessing officer for the aforesaid assessment year. Therefore, in absence of any incriminating material showing concealed/undisclosed income of the assessee, the assessing officer could not have proceeded to assess income which has already been reflected in the books of accounts and disclosed in the return of income filed by the assessee. Even otherwise also, conclusion drawn by the assessing officer in the assessment order that the agricultural income is unexplained also found to be not on cogent material, because of the fact that the CIT(A) has accepted 50% of the income shown as agricultural income against which the department is not in appeal. Further, in the remand report, the assessing officer himself has accepted that the assessee has earned income from coconut trees and casurina plantation which can be considered as agricultural income. In aforesaid view of the matter, the proceeding initiated u/s 153C of the Act in absence of any incriminating material and only on the basis of the material already disclosed by the assessee is invalid and consequently the assessment orders passed are also unsustainable in law. Accordingly, we quash assessment orders passed in all these assessment years - Decided in favour of assessee Disallowance of agricultural income - Held that - While completing assessment u/s 143(3) of the Act for the impugned assessment year, the assessing officer rejected assessee s claim of agricultural income and treated it as unexplained credit u/s 68 of the Act. The CIT(A) allowing partial relief modified the addition made by the assessing officer. While considering identical nature of dispute in case of M/s. Avinash Estates and Resorts Ltd. Vs. DCIT 2014 (10) TMI 668 - ITAT VISAKHAPATNAM and other group companies, this bench has directed the assessing officer to disallow 25% out of the agricultural income declared by the assessee. Respectfully, following the same, in the present case also we direct the AO to disallow 25% out of the agricultural income declared by the assessee.

Summary

Issues Involved:
1. Validity of proceeding under Section 153C of the Income Tax Act.
2. Treatment of agricultural income as unexplained credit under Section 68 of the Income Tax Act.

Issue-Wise Detailed Analysis:

1. Validity of Proceeding under Section 153C of the Income Tax Act:
The first issue pertains to the validity of the proceedings initiated under Section 153C of the Income Tax Act. The assessee challenged the initiation of proceedings under Section 153C, arguing that the conditions for such proceedings were not met. The Tribunal referenced its earlier decision in the case of M/s. Avinash Estates & Resorts Ltd., where it was held that for proceedings under Section 153C to be valid, the seized materials must be incriminating and indicate concealed income. The Tribunal noted that the assessment order did not specify the seized materials that led to the initiation of proceedings under Section 153C. It was found that the addition made by the assessing officer had no connection to the seized materials, and the income assessed was already disclosed in the books of accounts and the return of income filed by the assessee. Therefore, the Tribunal concluded that the initiation of proceedings under Section 153C was invalid as it was not based on any incriminating material found during the search. The Tribunal quashed the assessment orders for all the assessment years, rendering the other issues of academic interest only.

2. Treatment of Agricultural Income as Unexplained Credit under Section 68 of the Income Tax Act:
The second issue involves the treatment of agricultural income declared by the assessee. The assessing officer rejected the assessee's claim of agricultural income and treated it as unexplained credit under Section 68. The CIT(A) partially upheld the addition but granted some relief. The Tribunal, referencing its decision in the case of M/s. Avinash Estates and Resorts Ltd., directed the assessing officer to disallow 25% of the agricultural income declared by the assessee. This approach was consistent with the Tribunal's earlier decision for similar cases within the same group.

Conclusion:
The Tribunal allowed the appeals of the assessee concerning the validity of the proceedings under Section 153C, quashing the assessment orders for all the assessment years. In the matter of agricultural income, the Tribunal directed the assessing officer to disallow 25% of the declared agricultural income, consistent with its earlier rulings. Consequently, the appeals in ITA Nos. 337 to 342/Vizag/2014 were allowed, and ITA No. 343/Vizag/2014 was partly allowed. The judgment was pronounced in open court on 21st July 2014.