2014 (10) TMI 320 - AT - Income Tax

Validity of proceedings initiated u/s 153C Addition of STCG Held that - The seized material on the basis of which the AO has initiated the proceedings u/s 153C - A reference to the seized material indicates that the same is an account relating to Sri S. Venkateswara Rao in which certain payments have been recorded the seized material was not seized from assessee but from Sri D. Nagarjuna Rao in whose case search and seizure operation was conducted u/s. 132 - seized material has neither any reference to the assessee even remotely nor to the property sold by her - the seized material cannot be said to be belonging to assessee - Hence the pre-condition for initiating proceedings u/s 153C is not satisfied following the decision in M/s Shouri Constructions T. Jaipal Reddy Versus Asst. Commissioner of Income-tax 2013 (9) TMI 486 - ITAT HYDERABAD - as the seized material was neither seized from assessee nor has any reference to her or her property it cannot be said to be belonging to assessee - the proceedings initiated u/s. 153C is not valid - the assessment order passed in is also invalid - the AO without allowing an opportunity to assessee to cross examine Sri S. Venkateswara Rao was not correct in making the addition by relying upon the statement of Sri S. Venkateswara Rao - The AO having not brought any other corroborative evidence on record to establish that assessee had actually received the sale consideration the computation of short term capital gains made by him cannot be sustained. Unexplained investment in purchase of property Held that - It is not justified in considering the fact that assessee has explained the source of such investment by producing necessary evidence - assessee at the time of assessment proceedings as well as before the CIT(A) had stated that the amount of Rs. 3 lakhs was received from her uncle who is an agriculturist and she has also filed a confirmation in support of such claim - it is not understood what more supporting evidence assessee could have produced in support of her claim - When assessee has explained her source by producing evidence in the form of confirmation it is duty of the Departmental authorities to make enquiry and ascertain whether assessee s claim is correct or not - assessee s claim cannot be rejected merely on doubts and suspicion - the addition of Rs. 3 lakhs sustained by the CIT(A) is to be deleted Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of proceedings initiated under Section 153C of the Income-tax Act, 1961.
2. Addition of Rs. 31,02,000 as short term capital gains.
3. Confirmation of Rs. 3 lakhs out of the addition of Rs. 6,78,000 made by the Assessing Officer as unexplained investment.

Issue-wise Detailed Analysis:

1. Validity of Proceedings Initiated under Section 153C:
The assessee challenged the validity of the proceedings initiated under Section 153C of the Income-tax Act, 1961, arguing that the seized document did not belong to the assessee and was seized from a third party. The Tribunal noted that the seized material, page 55 of Annexure A/DNR/18, did not reference the assessee or her property and was seized from Sri D. Nagarjuna Rao. The Tribunal held that the pre-condition for initiating proceedings under Section 153C, which requires the seized material to belong to the assessee, was not satisfied. The Tribunal cited the decision of the Hon'ble Gujarat High Court in Vijaybhai N. Chandrani vs. ACIT and other judicial precedents to support its conclusion. Consequently, the Tribunal declared the initiation of proceedings under Section 153C and the subsequent assessment order as invalid.

2. Addition of Rs. 31,02,000 as Short Term Capital Gains:
The Assessing Officer added Rs. 31,02,000 as short term capital gains based on the seized material and statements from the purchaser and mediator, which indicated that the assessee received Rs. 37,80,000 as sale consideration. The Tribunal found no conclusive evidence that the assessee received Rs. 37,80,000, as the seized document did not reference the assessee or the property sold. The Tribunal noted that the assessee had received payments through cheques from the mediator, Sri S. Venkateswara Rao, and not directly from the purchaser. The Tribunal emphasized that the Assessing Officer did not allow the assessee to cross-examine the mediator, whose statement was relied upon. Without corroborative evidence, the Tribunal held that the addition of Rs. 31,02,000 as short term capital gains was not sustainable.

3. Confirmation of Rs. 3 lakhs as Unexplained Investment:
The Assessing Officer added Rs. 6,78,000 as unexplained investment, of which the CIT(A) confirmed Rs. 3 lakhs. The assessee explained that the Rs. 3 lakhs was received from her uncle, an agriculturist, and provided a confirmation. The Tribunal held that the addition was not justified, as the assessee had explained the source of the investment with necessary evidence. The Tribunal emphasized that the Departmental authorities should have conducted an enquiry to verify the assessee's claim. Without such an enquiry, the addition could not be sustained on mere doubts and suspicion. Therefore, the Tribunal deleted the addition of Rs. 3 lakhs.

Conclusion:
The Tribunal allowed the appeal of the assessee, declaring the proceedings initiated under Section 153C and the subsequent assessment order as invalid. Additionally, the Tribunal deleted the additions made on account of short term capital gains and unexplained investment, concluding that the evidence did not support the Assessing Officer's findings.