2015 (11) TMI 1682 - AT - Income Tax

Reopening of assessment - whether the reasons recorded for forming the belief of escapement of income on the basis of material seized are justified or vague to take recourse of section 147? - Held that - The ld. Counsel for the assessee has not placed before us any judicial pronouncement for the proposition that the material belonging to the person other than the person search, found and seized in the search and seizure operation, cannot be used against such person for the purpose of assessment u/s. 147. Accordingly, the first limb of assessee s stand challenging the validity of action u/s. 147 is rejected. The reasons have been recorded by the AO after drawing the inference from the seized documents that trend of payment of interest on PDCs by the group companies stood depicted and the assessee being a group company of BPTP Ltd., might have also paid interest on such PDCs. This approach of the authorities below, to our mind, is not tenable at all being based on fake inferences drawn. The assessee is a separate and distinct assessee under the Act and is to be assessed on the basis of material which belongs to it or specifically relevant for its assessment. In the instant case no specific document is pointed out belonging to the assessee nor any evidence or material, whatsoever, has been demonstrated by the authorities below to show that the assessee had paid interest on PDCs. Therefore, there being no definite material belonging to the assessee, in our opinion, the reasons recorded for initiation of proceedings u/s. 147 against the assessee, are not in consonance with law, having been based on mere suppositions and surmises and extrapolation of material seized. The fact that the assessee is a group company of BPTP Ltd. and overall management is controlled by one person cannot be equated with the existence of incriminating material belonging to the assessee for drawing the adverse inference. - Decided in favour of assessee.

Issues:
Validity of action u/s. 147 instead of section 153C,
Justification of sustenance of order u/s. 147,
Sustainability of CIT(A) conclusion on seized documents,
Error in upholding addition of interest and computation.

Validity of action u/s. 147 instead of section 153C:
The judgment involves cross appeals by the assessee and the revenue challenging the order dated 24.12.2012 of ld. CIT(A)-XXXIII, New Delhi for the assessment year 2006-07 regarding re-assessment proceedings u/s. 147 of the IT Act. The assessee raised concerns about the action taken u/s. 143(3)/147 instead of section 153C, claiming it to be void ab initio. However, the tribunal found that there is no bar to resort to the provisions of section 148/147 based on information received by the AO regarding seizure of documents belonging to a person other than the person searched. The tribunal cited legal precedents to support the view that incriminating material found during a search can be used against a third party under section 147. The tribunal rejected the argument challenging the validity of action u/s. 147, stating that the action against the third party is permissible if material belonging to them is seized during a search.

Justification of sustenance of order u/s. 147:
The tribunal examined the grounds raised by the assessee challenging the sustenance of the order u/s. 147. The assessee disputed the conclusion of CIT(A) that the seized documents proved interest paid on PDCs, highlighting that no document belonged to the assessee, no inquiry was made from any recipient, and no corroborating evidence was found. The tribunal agreed with the assessee, noting that the assessment was based on alien material with no specific nexus to the assessee. The tribunal found that the reasons recorded for initiating proceedings u/s. 147 were not justified, as they were based on suppositions and surmises, rendering the action void ab initio. Consequently, the tribunal held that the proceedings u/s. 147 were not sustainable and dismissed the appeal of the revenue.

Sustainability of CIT(A) conclusion on seized documents:
The tribunal analyzed the CIT(A)'s conclusion that no material belonging to the assessee was seized during the search, leading to the deletion of a portion of the addition made by the AO. The revenue challenged this deletion, arguing that the CIT(A) erred in removing a significant amount from the total addition. However, the tribunal upheld the CIT(A)'s decision, emphasizing that the assessment should be based on material relevant to the assessee. Since no specific document or evidence was presented to prove the assessee's involvement in the alleged transactions, the tribunal found the CIT(A)'s conclusion on the seized documents to be sustainable.

Error in upholding addition of interest and computation:
The tribunal addressed the error pointed out by the assessee regarding the addition of interest for the period PDCs were extended and the direction to compute interest after six months from the sale date. The tribunal found that since the proceedings u/s. 147 were deemed void, there was no need to delve into the merits of the additions challenged by the assessee and the revenue. Consequently, the tribunal allowed the appeal of the assessee and dismissed the appeal of the revenue, concluding the case on 23.11.2015.

← Previous Next →