2015 (11) TMI 1516 - AT - Income Tax

Assessment u/s 153A - Held that - Merely on the basis of statement which is not supported by the Department with cogent corroborative material cannot be a valid addition basis for sustaining such adhoc additions. It is the burden of the Department to prove that there existed relevant and cogent material to enable the Assessing Officer to make such additions. The Department has grossly failed to prove or demonstrate existence of any such relevant or cogent material supporting the addition. The assessee has demonstrated that the additions were not based on any incriminating material found during the course of search. Even in the absence of proof supported with cogent material the statement recorded u/s 132(4) by itself cannot be taken as conclusive. A perusal of the CBDT Instruction dated 10.3.2003 reveals that even the Board is aware of such laconic disclosures and excepts its officers to rely on incriminating evidence. The CBDT also is not in favour of search assessments being based on such disclosures it wants them to be based on incriminating material. In view of the facts and circumstances CBDT instruction and various case laws relied on by the assessee we are unable to uphold the additions made solely on the basis of statement recorded u/s 132(4) of the Act. Accordingly we are of the opinion that for the assessment years 2005-06 to 2009-10 wherein assessments were framed not as a result of any material found during the course of search operation in view thereof the said additions cannot be sustained as they do not conform the mandate of section 153A of the Act. Assessment year 2010-11 there is time limit to issue notice u/s 143(2) upto 30.9.2011 as in this case original return was filed on 25.9.2010. Therefore in our opinion even though there was no search material the proceedings are pending on the basis of the return filed therefore the Assessing Officer has to pass a composite order for the undisclosed income and the normal income. In other words one order has to be passed for the block period computing the taxable income including the undisclosed income therefore the Assessing Officer has to compute total taxable income on the basis of the material available on record. Since the assessee has admitted that calendaring clearing and washing charges staff salary were inflated the same are to be considered. Assessment year 2011-12 the return of income was filed consequent to notice u/s 153C and no return was filed u/s 139. As discussed for assessment year 2010-11 the Assessing Officer has to pass a composite order for the undisclosed income and the normal income on the basis of material available on record. Being so as discussed in assessment year 2010-11 the Assessing Officer is justified in passing assessment order for this assessment year also to bring the undisclosed income into tax. Accordingly the assessee s appeals for assessment years 2005-06 to 2009-10 are allowed and appeals for assessment years 2010-11 and 2011-12 are dismissed.

Summary

Issues Involved:
1. Validity of additions based on retracted statements.
2. Legality of assessments under Section 153A/153C in the absence of incriminating material.
3. Treatment of concluded assessments in the context of Section 153A proceedings.
4. Inflation of expenses and suppression of sales.
5. Set-off of losses against undisclosed income.

Detailed Analysis:

1. Validity of Additions Based on Retracted Statements:
The assessee retracted a statement made under Section 132(4) of the Income Tax Act, which was the basis for the Assessing Officer's (AO) additions for various assessment years. The AO disregarded the retraction and made additions towards inflated expenses and unaccounted income. The CIT(A) observed that no evidence was found during the search to support these additions and directed the deletion of the additions for the assessment years 2005-06 and 2007-08. The Tribunal upheld this view, stating, "the statement made by Shri N. Rajendran during the course of search operation u/s 132(4) is nowhere surviving and it is not possible to hold that the assessment u/s 153C could be made only on the basis of statement recorded u/s 132(4) without any support of corroborating material."

2. Legality of Assessments Under Section 153A/153C in the Absence of Incriminating Material:
The Tribunal emphasized that assessments under Section 153A/153C should be based on incriminating material found during the search. It cited the Special Bench decision in All Cargo Global Logistics Ltd vs DCIT, which clarified that reassessment can only be made if incriminating materials are found. The Tribunal stated, "no material was found indicating that there was any suppression of sales or inflation of expenditure during the course of search operation."

3. Treatment of Concluded Assessments in the Context of Section 153A Proceedings:
For the assessment years 2005-06 to 2009-10, the Tribunal noted that the time limit for issuing notices under Section 143(2) had lapsed by the date of the search, meaning the assessments had reached finality. The Tribunal held that "the Assessing Officer has to confine himself only to the material found during the course of search operation" for these years.

4. Inflation of Expenses and Suppression of Sales:
The AO made additions based on the alleged inflation of expenses in respect of staff salary, calendaring, cleaning, and washing charges. The Tribunal found that these additions were not supported by any incriminating material found during the search and were solely based on the retracted statement. The Tribunal concluded that "merely on the basis of statement which is not supported by the Department with cogent corroborative material cannot be a valid addition basis for sustaining such adhoc additions."

5. Set-off of Losses Against Undisclosed Income:
The AO disallowed the set-off of losses claimed by the assessee, stating that these were met out of unaccounted income. The CIT(A) found no evidence to support this claim and directed the deletion of the additions. The Tribunal upheld this decision, noting that "the additions made by the Assessing Officer are not based on any concrete evidence, but based only on the statement given by Shri N. Rajendran during the course of search action u/s 132 of the Act."

Conclusion:
The Tribunal allowed the appeals of the assessee for the assessment years 2005-06 to 2009-10, stating that the additions were not based on any incriminating material found during the search. The appeals for the assessment years 2010-11 and 2011-12 were dismissed, as the AO was justified in passing assessment orders for these years based on the material available on record. The Revenue's appeals for the assessment years 2005-06 and 2007-08 were dismissed as infructuous, and the corresponding cross objections filed by the assessee were dismissed as not pressed.