2016 (1) TMI 1085 - AT - Income Tax

Validity of assessments u/s 153A - Held that - Original notice was issued u/s 153A and there as neither any warrant or search on assessee. Similarly while issuing notice u/s 153C no satisfaction in this behalf in the case of Modi group nor there was any assessment in the case of Shri Govind Dev as the 153A proceedings were dropped in that case. The satisfaction recorded by AO initiating 153C is silent regarding the pending proceeding initiated u/s 153A by notice dtd. 29.12.2009 in the case of the assessee. The proceedings though purported to be initiated u/s 153C the assessments are completed u/s 153A rws 143(3) as evidenced by the respective orders of ld. AO and CIT(A). This leads to a legal situation where during the pendency of 153A proceedings notice u/s 153C is issued. To further confound the situation the proceedings are purported to be continued u/s 153C but the assessments are completed u/s 153A despite consciously dropping the notice u/s 153A. We find merit in the argument of ld. Counsel that assessments u/s 153A and 153C are independent and mutually exclusive, an assessment cannot be framed in continuation of both notices and similarly cannot be concluded u/s 153A if proceedings are undertaken u/s 153C. In view of the facts, circumstances and judicial precedents cited above we hold that impugned assessments are untenable and bad in law.- Decided in favour of assessee Trading addition - Held that - Trading results of the assessee s business were already subject matter of appeals, there was no search on his show room, and therefore, no incriminating material was found. By estimating the GP from regular business ld AO has reviewed settled position without any incriminating material in this behalf, which is not permissible in search assessments. In view thereof we delete the additions made in respect of estimation of GP from regular business.- Decided in favour of assessee Income declared from unaccounted business - Held that - It has not been disputed that assessee filed complete record of year wise and transaction wise accounts of material found in the locker. No adverse comments have been offered by ld. AO in this behalf. Regarding comparatively lesser GP from unaccounted business than regular business assessee offered proper reasons which have not been even considered by AO. The GP has been enhanced not based on any objective considerations but by summarily relying on estimated GP of regular business. In our considered view the incriminating material should considered in totality and when assessee has submitted copious accounts for incriminating material it cannot be discarded summarily as done by ld. AO. Since there is no rebuttal in respects of accounts of unaccounted income furnished by the assessee, the profits declared deserve to be accepted in given facts and circumstances. Similarly it is not disputed that value of stock of jewelry found from locker was taken by ld. AO on market price whereas as per settled accounting principles same should have been valued at cost. Consequently valuation adopted by assessee is to be adopted. Thus the additions in question deserve to be deleted on merits also. - Decided in favour of assessee

Summary

Issues Involved:
1. Deletion of trading addition by CIT(A) despite rejection of books of account.
2. Legality of assessment orders framed under sections 153A/153C/143(3) of the Income Tax Act, 1961.
3. Application of gross profit (GP) rate on unaccounted sales.
4. Estimation of GP from regular business and rejection of books of accounts.
5. Valuation of unaccounted jewelry stock.

Detailed Analysis:

1. Deletion of Trading Addition by CIT(A) despite Rejection of Books of Account:
The Revenue challenged the deletion of trading addition of Rs. 49,48,340/- by the CIT(A) for AY 2006-07, arguing that the rejection of books of account was upheld based on seized documents. However, the CIT(A) only sustained a trading addition of Rs. 50,000/-.

2. Legality of Assessment Orders Framed under Sections 153A/153C/143(3):
The assessee contended that the assessment orders were void ab initio due to the lack of incriminating documents found during the search and improper satisfaction recorded. The search was conducted on a locker in the name of third parties, and proceedings under section 153A were initiated but later dropped. Subsequently, proceedings were initiated under section 153C without proper satisfaction recorded in the assessments of the original searched parties.

The Tribunal found multiple jurisdictional issues:
- Original notice u/s 153A was issued without a valid warrant or search on the assessee.
- No satisfaction was recorded while completing 153A assessments in the case of the original searched parties.
- The assessments were completed under section 153A despite initiating proceedings under section 153C.

The Tribunal held that assessments under sections 153A and 153C are independent and mutually exclusive. Therefore, the impugned assessments were deemed untenable and bad in law, citing judicial precedents such as Jindal Stainless Ltd. and Shital Prasad Kharag Prasad.

3. Application of Gross Profit (GP) Rate on Unaccounted Sales:
The assessee argued that the GP rate applied by the AO on unaccounted sales was unjustified. The unaccounted business had a different operational model with faster turnover and lower GP compared to the regular business. The assessee provided detailed accounts of unaccounted transactions, which the AO did not rebut.

The Tribunal agreed with the assessee, noting that the AO's approach was arbitrary and lacked objective consideration. The accounts of unaccounted transactions provided by the assessee were not challenged by the AO, and the GP rate from regular business could not be summarily applied to unaccounted sales.

4. Estimation of GP from Regular Business and Rejection of Books of Accounts:
The AO rejected the books of accounts and estimated a higher GP rate for regular business. The assessee contended that the books were regularly maintained, audited, and no significant defects were pointed out. The Tribunal found that the AO's rejection of books and estimation of GP was unjustified, especially since no incriminating material was found during the search on the assessee's premises.

The Tribunal emphasized that rejection of accounts does not automatically justify higher GP estimation without specific defects or a valid basis. The Tribunal cited various judicial precedents supporting the assessee's position and deleted the additions made by the AO.

5. Valuation of Unaccounted Jewelry Stock:
The AO valued the unaccounted jewelry stock at market price, while the assessee argued it should be valued at cost. The Tribunal agreed with the assessee, stating that as per settled accounting principles, the stock should be valued at cost. Consequently, the valuation adopted by the assessee was accepted.

Conclusion:
The Tribunal allowed the appeals filed by the assessee and dismissed those filed by the Revenue. The Tribunal held that the assessments were bad in law due to jurisdictional defects and improper application of GP rates. The additions made by the AO were deleted, and the valuation of unaccounted jewelry stock was accepted as per the assessee's submission.