2016 (3) TMI 1279 - AT - Income Tax

Initiation of proceedings under sec. 153C - Undisclosed capital gain on sale of shares - Held that - In the present case there was no seized material (which includes document ) belonging to the assessee and when the assessment under sec. 143(3) accepting the sale consideration per share was already framed invocation of provisions under sec. 153C of the Act in the present case was not valid. We hold so with this further finding that the assessment framed in furtherance to the such invalid initiation of proceedings under sec. 153C is also invalid and is quashed as void ab initio. The objection No.1 of the cross objection is thus decided and allowed in favour of the assessee. The remaining objection of the cross objection preferred by the assessee and the grounds of the appeal of the Revenue questioning the validity of deletion of addition of Rs. 4, 50, 00, 000 made in the hands of the assessee on account of undisclosed capital gain on sale of shares of Bahal Sons Properties Pvt. Ltd. thus do not survive in view of the above findings on objection No.1 of the cross objection. These are accordingly disposed off.

Summary

Issues Involved:
1. Validity of the notice issued under Section 153C/153A of the Income-tax Act, 1961.
2. Validity of the addition of Rs. 4,50,00,000 as undisclosed capital gain on the sale of shares of Bahalsons Properties Pvt. Ltd.

Detailed Analysis:

1. Validity of the Notice Issued Under Section 153C/153A of the Income-tax Act, 1961:
The assessee contended that the notice issued under Section 153C/153A of the Income-tax Act was void ab initio as the documents in question did not belong to the assessee. The assessee argued that the notice was issued without any satisfaction or application of mind by the authorities. The search and seizure operation under Section 132 of the Act was carried out in the Gopal Zarda Group of cases, and documents were seized from the premises of Shri Ashok Kumar Aggarwal and Gopal Corporation Ltd. However, the assessee claimed that none of these documents belonged to him.

The assessee raised several objections during the assessment proceedings, including the lack of any document or material belonging to him being found in the search, no satisfaction being recorded, and no handing over of seized material as per the provisions of Section 153C. The assessee also highlighted that the issue of the sale of shares had already been examined and finalized in an earlier assessment order under Section 143(3).

The appellate tribunal found that the documents seized did not belong to the assessee and there was no independent corroboration through documentary evidence or adverse statements. The tribunal referred to several judicial precedents, including CIT vs. RRJ Securities Ltd. and Pepsico India Holding (P) Ltd. vs. ACIT, which held that for Section 153C to be invoked, the seized material must belong to the person other than the one searched. In this case, since there was no seized material belonging to the assessee and the assessment under Section 143(3) was already framed, the invocation of Section 153C was deemed invalid. Consequently, the assessment framed in furtherance of such invalid initiation was quashed as void ab initio.

2. Validity of the Addition of Rs. 4,50,00,000 as Undisclosed Capital Gain:
The Revenue questioned the first appellate order, which deleted the addition of Rs. 4,50,00,000 made by the Assessing Officer (A.O.) on account of undisclosed capital gain from the sale of shares of Bahalsons Properties Pvt. Ltd. The assessee had sold his shares in Bahalsons Properties Pvt. Ltd. and declared a capital gain, which was accepted in the assessment order under Section 143(3). However, during the search operation, documents were seized, and the A.O. made an addition of Rs. 4.5 crores as undisclosed capital gain based on these documents.

The tribunal noted that the documents seized did not mention or depict the name of the assessee, nor did they bear any handwriting of the assessee or carry information about any specific transaction of share sale. The tribunal also observed that the documents were not found with the assessee or from his premises. The tribunal found that the first appellate authority had already examined the documents and concluded that they did not belong to the assessee. Therefore, the addition of Rs. 4,50,00,000 was not justified.

In light of the tribunal's finding that the notice under Section 153C was invalid, the question of the validity of the addition of Rs. 4,50,00,000 did not survive. Consequently, the cross-objection preferred by the assessee was allowed, and the appeal preferred by the Revenue was dismissed.

Conclusion:
The appellate tribunal allowed the cross-objection raised by the assessee, holding that the notice issued under Section 153C was invalid and the subsequent assessment was void ab initio. As a result, the addition of Rs. 4,50,00,000 as undisclosed capital gain was also invalidated. The appeal by the Revenue was dismissed.