2017 (10) TMI 1278 - AT - Income Tax

Validity of assessments made u/s.153C r.w.s. 153A - search under section 132 was conducted on 02/11/2011 at the residence of the assessee in connection with the search warrant issued on Shri John Kuriakose of M/s Dentacare Group - Held that - If during the course of search documents pertaining to the assessee are found the Assessing Officer has the jurisdiction under section 153C of the Act but the addition in respect of the assessment which has not been abated can be made only on the basis of the incriminating material found during the course of search not otherwise. Now coming to assessment year 2006-07 to 2010-11. We noted that no incriminating material during the course of search was found in respect of the agricultural income treated as unexplained cash credit as well as cash shortage treated as unexplained investment. Therefore no addition in respect of these can be made. We therefore delete the addition in each of the assessment years in respect of agricultural income treated as unexplained cash credit and cash shortage treated as unexplained investment. Thus the grounds in each of these assessment years relating to these additions stand allowed. Addition on basis of statement recorded in search - Held that - we noted that the assessee himself before the Assessing Officer tried to explain the source of the investments made outside the books of account in the land transaction to the extent of Rs. 29, 30, 600/- by taking the loan from Reliance Capital Barclays Bank and Standard Chartered Bank amounting to Rs. 7, 50, 000/- Rs. 11, 00, 000/- and Rs. 15, 00, 000/- respectively. These loans were taken on 04/09/2008 01/11/2008 and 04/09/2008 while the assessee has purchased the land vide sale deed registered on 18/06/2008 02/07/2008 and 10/07/2008. We do agree with the contention of learned D.R. and the finding given by the authorities below that no seller would transfer the land until and unless he received the on-money agreed between the two. Explaining the source of onmoney does not prove that the assessee has paid the on-money for the purchase of land. In view of this fact we do not find any illegality or infirmity in the order of CIT(A). This is the settled law that the statement recorded during the course of the search will be valuable evidence being incriminating document found during the course of search Coming to assessment year 2011-12. So far ground Nos. 1 to 3 are concerned as discussed while disposing ground No. 1 to 3 in preceding paragraph relating to assessment years 2006-07 and 2010-11 we dismiss the said grounds as in this case we noted that the return for the aforesaid assessment year has been filed by the assessee after the search had taken place on 02/11/2011 not prior to that. Since the search had taken place prior to that therefore the assessment for the impugned assessment year has been abated being pending at the time of search Unexplained investment - AO recasted the cash flow by taking the opening balance to be zero as in the recasted cash flow statement for assessment year 2010-11 the closing balance was taken to be zero and noted that there was a cash shortage - Held that - Since the assessment for the assessment year 2010-11 was not abated and no material was found during the course of search on the basis of which the cash flow statement for the assessment year 2010-11 has to be modified therefore in our view the assessee has to get the set off of opening balance of the cash in hand amounting to Rs. 4, 83, 751/-. We accordingly reduce the addition by the said amount. We also noted that the assessee has shown the profit from the business belonging to Mini Eldhose and the assessee has also considered the expenses as well as the drawing of Mini Eldhose in her cash flow statement. Therefore in our opinion the Assessing Officer was not correct in law excluding the sum of Rs. 3, 65, 000/- profit earned from the said business as the cash to that extent must have been available with the assessee during the year. Agriculture income earned by Mini Eldhose - Held that - Since the facts relating to the agriculture income earned by Mini Eldhose and holding of the land by her are not before us therefore we cannot decide how much agriculture income would have been earned by Mini Eldhose. To the extent the agriculture income is earned by here the same will be available as a source of receipt of the cash in the hands of the assessee. Since neither the Assessing Officer nor the CIT(A) and even the assessee has not brought out on record any document in this regard therefore in the interest of justice and fair play to both the parties we set aside the issue for the purpose of determining the shortage of cash in respect of the agricultural income earned by Mini Eldhose. Thus this ground is partly allowed. Treating the agriculture income to be the income from other sources - Held that - We do agree that in view of the quantum of the agriculture income returned by the assessee the assessee is not required to maintain the regular books of account for the agriculture income but keeping in view the quantum of the land holding the agriculture income shown by the assessee is on a higher side but since in the preceding assessment year the income from the same land holding stand accepted by processing the return under section 143(1) to the extent of Rs. 2, 00, 000/- therefore we treat the sum of Rs. 2, 00, 000/- following principle of consistency although it is on higher side from the said agriculture land to be the agriculture income and confirm the action of the authorities below treating the balance sum of Rs. 1, 00, 000/- as income from undisclosed sources. Thus this ground taken by the assessee is partly allowed. Addition in respect of investment made in the land purchase - Held that - The said sum of which represents Rs. 18, 15, 000/- which is the cash credit in the bank account of Eldhose K. Varghese on different dates i.e. Rs. 8, 70, 000/- on 18/08/2011 Rs. 9, 00, 000/- on 19/04/2011 and Rs. 45, 000/- on 20/04/2011. It was noted that the said amount was also quickly withdrawn in cash and credited into the accounts of the assessee s wife Mini Eldhose Rs. 9, 00, 000/- withdrawn on 19/04/2011 and Rs. 8, 70, 000/- on 18/08/2011. Once the CIT(A) has deleted the addition of Rs. 13, 50, 000/- which includes the sum of Rs. 9, 00, 000/- withdrawn by the assessee on 19/04/2011 and given to the assessee s wife. Therefore the contention of Learned D. R. that there was no withdrawal for paying the consideration of Rs. 5, 44, 000/- from the account of Mini Eldhose on 19/04/2011 amounting to Rs. 9, 00, 000/- which is sufficient to cover up the sum of Rs. 5, 44, 000/- and the Revenue has not come in appeal against the deletion of Rs. 13, 50, 000/- Therefore we delete the addition of Rs. 5, 44, 000/-. Thus ground No. 3 stands allowed. Estimate of the income by way of profit on sale of land - Held that - As gone through the cash flow statement submitted by the assessee before the Assessing Officer during the course of assessment proceedings in replyto the notice issued under section 142(1) which is appearing at para 8 of the assessment order. From page 4 of the assessment order we find that the assessee has shown the source of the sum of Rs. 7, 15, 000/- and Rs. 5, 50, 000/- to be the sale of land. Naturally when the assessee has sold the land the assessee might have earned the profit. The Assessing Officer has found that the assessee has not disclosed the said profit in the return filed by him and accordingly computed the said profit at Rs. 36, 000/-. The profit earned on the sale of the land is chargeable to tax. Agriculture income returned as treated by the Assessing Officer as undisclosed income - Held that -In the earlier year the income from agriculture has been accepted at Rs. 2, 00, 000/- but so far these lands are concerned in our view the onus lies on the assessee to prove that the assessee has cultivated the land and earned the agriculture income. No government document showing the cultivation of the crop by way of revenue record was placed before us. It is not denied that the land so purchased are in small pieces but following the rule of consistency we direct the Assessing Officer to treat the sum of Rs. 2, 00, 000/- out of the sum of Rs. 4, 30, 000/- to be the agriculture income earned by the assessee.

Summary

Issues Involved:
1. Validity of assessments under section 153C read with section 153A and 143(3).
2. Addition of unexplained cash shortage.
3. Addition of agricultural income as undisclosed income.
4. Addition on account of investment in land.
5. Levy of interest under sections 234A, 234B, and 234C.

Detailed Analysis:

1. Validity of Assessments under Section 153C:
The assessee argued that the assessments made under section 153C read with section 153A and 143(3) were void and without jurisdiction as no incriminating evidence was found during the search. The Tribunal examined the provisions of sections 153A and 153C and concluded that the Assessing Officer (AO) assumed jurisdiction correctly under section 153C, as documents belonging to the assessee were found during the search. The Tribunal rejected the contention that the assessments were invalid due to the absence of incriminating documents.

2. Addition of Unexplained Cash Shortage:
The AO made additions for unexplained cash shortages treated as unexplained investments. The Tribunal noted that no incriminating material was found during the search for the assessment years 2006-07 to 2010-11. Consequently, the Tribunal deleted the additions for these years, emphasizing that additions could only be made based on incriminating material found during the search.

3. Addition of Agricultural Income as Undisclosed Income:
The AO treated the agricultural income declared by the assessee as undisclosed income. The Tribunal observed that the assessee had declared agricultural income in previous years, which had been accepted by the Revenue. For the assessment year 2011-12, the Tribunal directed the AO to estimate the agricultural income based on the landholding of Mini Eldhose and give credit for the same against the cash shortage. For the assessment year 2012-13, the Tribunal accepted the agricultural income to the extent of Rs. 2,00,000, following the principle of consistency, and treated the balance as income from undisclosed sources.

4. Addition on Account of Investment in Land:
For the assessment year 2009-10, the AO made an addition of Rs. 29,30,600 based on the assessee's statement during the search. The Tribunal upheld this addition, noting that the assessee had not retracted the statement until five years later and had tried to explain the source of investment through loans taken subsequently. For the assessment year 2011-12, the AO made an addition of Rs. 10,43,928 for unexplained investment in land. The Tribunal reduced this addition by Rs. 4,83,751 and Rs. 3,65,000, giving credit for the opening cash balance and profit from the business of Mini Eldhose. The issue of agricultural income for Mini Eldhose was remanded to the AO for fresh determination. For the assessment year 2012-13, the Tribunal deleted the addition of Rs. 5,44,000, noting that the CIT(A) had accepted the sum received from the assessee's brother, which covered the investment amount.

5. Levy of Interest under Sections 234A, 234B, and 234C:
The Tribunal directed the AO to recompute the interest levied under sections 234A, 234B, and 234C after giving effect to its order.

Conclusion:
The appeals for the assessment years 2006-07 to 2008-09 and 2010-11 were allowed, while the appeals for the assessment years 2009-10, 2011-12, and 2012-13 were partly allowed. The Tribunal's decision emphasized the importance of incriminating material found during the search for making additions under section 153C and provided detailed directions for the AO to follow in recomputing the assessments and interest.