2014 (6) TMI 587 - AT - Income Tax

Validity of assessment u/s 153A of the Act Reference to seized documents not made Held that - Following Mr GOPAL LAL BHADRUKA, Versus DEPUTY COMMISSIONER OF INCOME TAX 2012 (6) TMI 657 - ANDHRA PRADESH HIGH COURT - return filed for the AYs pending on the date of search - the assessment for the AYs stands abated on the date of initiation of search - even if there is no incriminating material to indicate any undisclosed income or income escaped assessment during the original assessment completed u/s 143(3), the AO is bound to make assessment u/s. 153A for all the AYs Decided against Assessee. Disallowance of expenses on commission income - Held that - AO disallowed the expenditure without an iota of discussion in his order- There is no finding by the AO regarding how he doubted this expenditure and he in a mechanical manner disallowed the same which is not proper - Had he doubted the expenditure, he ought to have called for evidence and confronted the assessee to prove the genuineness of the expenditure - the expenditure cannot be disallowed Decided in favour of Assessee. Addition of unexplained credit u/s 68 of the Act - Held that - Following Mr GOPAL LAL BHADRUKA, Versus DEPUTY COMMISSIONER OF INCOME TAX 2012 (6) TMI 657 - ANDHRA PRADESH HIGH COURT - by virtue of section 158BI of the Act, various provisions of Chapter XIVB of the Act are made in applicable to the proceedings u/s. 153A/153C of the Act- while provisions of Chapter XIVB of the Act limit the enquiry by the AO to those materials found during the course of search and seizure operation, no such limitation is found in so far as section 153A/153C of the Act are concerned - there is no necessity of seized material to frame the assessment u/s. 153A of the Act as required for framing assessment u/s. 158BC r.w.s. 158BB of the Act - the assessee is required to explain the source while framing the assessment u/s 153A of the Act thus, the matter is remitted back to the AO to explain the source of receipt Decided partly in favour of Assessee. Addition of capital gain our of development agreement Already offered for tax - Held that - The HUF has declared the income arising out of transfer of property vide Joint Development Agreement in the hands of HUF and paid tax consequent to the notice issued to the assessee u/s. 153A of the Act on 9.9.2009 - once the Department accepted the return of income declared by the HUF arising out of transfer of capital asset vide development agreement - it is not proper to tax the same in the hands of the assessee in any assessment year which amounts to double taxation - the lower authorities are not justified in taxing the capital gain arising out of transfer of capital asset vide development agreement. The entire control over the property was with the assessee inasmuch as the licence to construct the property was also in the name of the assessee - It was found that execution of the agreement could not amount to transfer as contemplated u/s 53A of the Transfer of Property Act Decided in favour of Assessee. Addition of unaccounted investment Investment of loans Held that - There is no evidence to show that the assessee has given loans to these parties - the addition is made on the basis of conjectures and surmises - This is an assessment framed u/s. 153A r.w.s. 143(3) of the Act - There should be conclusive evidence to suggest that the assessee has carried on money lending business and in terms of money lending business the assessee has received these cheques - unless and until there is corroborative evidence to suggest that the assessee has carried on the money lending business no addition can be made Decided in favour of Assessee. Addition of value of gold and jewellery Held that - Assessee rightly contended that the jewellery found at the residence of the assessee is not only belongs to the assessee but also belongs to the family members of the assessee and the same should be considered as per the CBDT circular 1916 dated 11.5.1994 - thus, the matter is required to the be remitted back to the AO to give credit to gold and jewellery to each member of the assessee s family members in terms of CBDT circular No. 1916 dated 11.5.1994 if they are living under single roof as supported by documentary evidence Decided partly in favour of Assessee.

Issues Involved:

1. Legality of additions made under Section 153A without reference to seized documents.
2. Disallowance of expenditure claimed.
3. Addition towards unexplained credit.
4. Taxability of capital gains arising from development agreements.
5. Addition towards undisclosed profit from development agreements.
6. Addition towards unexplained investment.
7. Addition towards unaccounted jewelry.
8. Addition towards unexplained cash.
9. Addition towards unaccounted loans.
10. Jurisdictional issues under Section 153C.
11. Valuation of unaccounted jewelry.
12. Adjustment of seized cash towards tax liability.

Issue-wise Analysis:

1. Legality of Additions under Section 153A:
The Tribunal upheld the Assessing Officer's (AO) authority to make additions under Section 153A even without reference to seized documents. The Tribunal cited the jurisdictional High Court's decision in Gopal Lal Badruka, which allows the AO to consider material other than what was seized during the search.

2. Disallowance of Expenditure:
The Tribunal found that the AO disallowed the expenditure of Rs. 54,059 without proper discussion or evidence. The Tribunal ruled that the AO should have called for evidence and confronted the assessee. Therefore, the disallowance was not justified and was reversed.

3. Addition Towards Unexplained Credit:
The Tribunal remanded the issue of unexplained credit of Rs. 3,25,000 back to the AO for fresh consideration, allowing the assessee to explain the source of the amount. The Tribunal referenced the case of Gopal Lal Badruka, stating that the AO can consider both seized material and other evidence.

4. Taxability of Capital Gains from Development Agreements:
The Tribunal ruled that capital gains arising from development agreements should not be taxed in the hands of individuals if the property belonged to HUF and the HUF had already declared and paid tax on those gains. The Tribunal emphasized avoiding double taxation and referenced the CBDT circular No. 14 (XL-35) dated 11.4.1955.

5. Addition Towards Undisclosed Profit from Development Agreements:
The Tribunal held that there was no development activity undertaken by the developer in the assessment year under consideration. Therefore, the capital gains could not be taxed. This was consistent with the Tribunal's decision in Mrs. K. Radhika & Ors.

6. Addition Towards Unexplained Investment:
The Tribunal found that the AO based the addition of Rs. 29,78,040 on a loose sheet without corroborative evidence. The Tribunal directed the AO to consider the registered sale deed value of Rs. 58,72,050 and verify the source of this amount.

7. Addition Towards Unaccounted Jewelry:
The Tribunal directed the AO to give credit for jewelry to each family member of the assessee in terms of CBDT circular No. 1916 dated 11.5.1994. The Tribunal remanded the issue back to the AO to verify the claims.

8. Addition Towards Unexplained Cash:
The Tribunal upheld the CIT(A)'s decision to provide relief of Rs. 1,21,200 out of the total cash found of Rs. 11,21,200, considering it reasonable. The remaining addition of Rs. 10 lakhs was sustained.

9. Addition Towards Unaccounted Loans:
The Tribunal found no conclusive evidence to suggest that the assessee had carried on money lending business. The addition of Rs. 27 lakhs was deleted as it was based on conjectures and surmises.

10. Jurisdictional Issues under Section 153C:
The Tribunal confirmed the legality of framing assessments under Section 153C, following the same reasoning as in the case of Sri Ch. Malla Reddy.

11. Valuation of Unaccounted Jewelry:
The Tribunal upheld the AO's valuation of Rs. 46,04,130 based on the Registered Valuer's report. The assessee's claim of Rs. 42,80,000 was not substantiated with contrary evidence.

12. Adjustment of Seized Cash Towards Tax Liability:
The Tribunal directed the AO to examine the claim of the assessee regarding the adjustment of seized cash towards tax liability in light of judicial decisions and Section 132B provisions.

Conclusion:
The Tribunal's decisions were a mix of upholding, remanding, and reversing the AO's and CIT(A)'s findings based on the merits of each case and relevant legal precedents.

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