2017 (6) TMI 1292 - AT - Income Tax

Assessment u/s 153C - on money receipt - proof of incriminating material fond in search - HELD THAT - The figures written on the right side of the page were not disputed as unaccounted in the books. We found that the first figure on the left hand side of the page was proved to be a cheque noting. Further, it was also stated in the statement on oath by Mr. Bhawan Patel in reply to Q.no. 22 as may be seen at page no 3 of the assessment order that no cash has been received on sale of shops. Further, it was also explained to the CIT (A), that the remaining figures at left side of the page 5 were transactions intended to be done through cheque as stated for A.Y. 2007-08. From the record we also found that Summons u/s. 131 were also issued to few customers who had attended before the Assessing Officer and given their statement and ITR details stating that they have not paid any cash in respect of these shops purchased. However, the Assessing Officer presumed that the assessee had accepted on money and applied the rate of on money on transaction for A.Y. 2006-07. We do not find infirmity in the order of CIT(A) for deleting the said addition, since the findings recorded by CIT(A) are as per material on record and the same has not been controverted by revenue by bringing any positive material on record. The CIT(A) has also correctly applied the judicial pronouncements laid down in the case of Royal Marwar 2007 (12) TMI 321 - ITAT AHMEDABAD to the facts of the instant case. Accordingly addition made by AO on account of on-money has been correctly deleted by CIT(A) after recording detailed finding which is as per materials on record. Since no addition has been made based on these documents but the addition is solely based on page no 5 of the Annexure A - 1 impounded during the course of survey at the assessee s premises, thus, the documents i.e. page no 1 to 27 of Annexure A - 1 found in course of search cannot be termed as incriminating material as envisaged u/s. 153C. Moreover there was no year specific incriminating material available with the learned Assessing Officer. In this regard, we rely on the decision of Hon ble Bombay High Court in the case of CIT v. Sinhgad Technical Education Society 2015 (4) TMI 190 - BOMBAY HIGH COURT wherein it is observed that where loose papers found and seized from residence of president of assessee, an educational institution, indicating some 'on money receipt during admission process did not establish co-relation document-wise with assessment years in question, notice issued under section 153C to assessee was invalid. Long term capital gains on account of surrender of tenancy rights - HELD THAT - As the pressure from the landlord mounted, the assessee company had to surrender the tenancy to the landlords. Thus, no transaction ever took place between the Assessee Company and said Shri Ravindra G. Jain, who have obtained the said tenancy right directly from the landlords and the assessee was never a party to that agreement. The assessee is given to understand that said Shri Ravindra G. Jain has admitted to have acquired the tenancy rights in the said premises from the landlord directly and there was no transaction between the present tenant and the assessee. In fact, the tenancy rights cannot be directly sold by a monthly tenant and have to be surrendered to the landlord. Thus, we do not find any merit in the AO s action holding that assessee had a capital asset in the form of tenancy right and for surrender of which assessee has got the money. There is no basis for such assumption. Furthermore there is no evidence that the assessee has received any sum for surrender of tenancy rights and accordingly no addition is called for in the case of the assessee. Moreover, the provisions of Section 50C are not applicable in case of surrender of tenancy right as observed in the case of Smt. Kishori Sharad Gaitonde v. ITO 2009 (11) TMI 905 - ITAT MUMBAI and Dy. CIT vs. Tejinder Singh 2012 (3) TMI 47 - ITAT, KOLKATA . Accordingly, addition made by AO by taking stamp duty valuation of the tenancy a sum of ₹ 7,71,000/- is directed to be deleted. We direct accordingly. Addition on account of on-money - CIT(A) restricted the addition to the extent of 17% and deleted the balance 83% of estimate basis. - HELD THAT - With regard to the allegation of department that the Assessee-Company has received on-money, it is important to note that the director of the assessee company had been searched and the assessee s premises surveyed. However, no undisclosed cash, investments, expenditure, etc. had been found either in the course of search and survey proceedings in relation to the assessee. It may be appreciated that if infact there was such a huge receipt of on- money as alleged by the revenue, then the revenue should have been able to corroborate it with evidences in the form of undisclosed cash, investment or expenditure. The fact that no such evidences were available as regard to undisclosed cash, expenses or investment infact also substantiates the claim of the assessee that no on-money was received by it. Notwithstanding the above observation, since the survey party has found that the assessee was not able to substantiate fully with corroborative evidences that the amount of ₹ 8,90,000/- was not received in cash addition of ₹ 8,90,000 is warranted. However, since the assessee had already offered a sum of ₹ 1 crore to cover any discrepancies whatsoever no separate addition is warranted. The onus of the assessee stands discharged and shifts to the learned Assessing Officer. Provisions of section 132(4A) or 292C of the Act speaks about the presumption of the content in the seized material only (not extrapolation) and that too it is a rebuttable presumption. The assessee has already rebutted the presumption with evidences and to buy peace of mind has offered a sum of ₹ 1 crore which is much over and above ₹ 8.90 lakhs. Direct the AO to delete the addition made on account of extrapolation in respect of advances received during the year. Such an exaggerated / wild extrapolation in the matter is unjust and unwarranted especially when enquires were done and nothing adverse was found against the assessee and thus, as the offer of ₹ 1 crore made covers all the discrepancies, no further additions made by the Id. AO / CIT(A) is sustainable. Notice u/s.143(2) was not issued to the assessee within a period of 12 months from the date of filing of return - HELD THAT - Even though the additional ground taken by assessee with regard to issue of notice u/s.143(2) is a purely legal issue but the facts are not clear from the record, therefore, in the interest of justice, we restore this ground back to the file of the AO for deciding afresh as per law after verifying the records. We direct accordingly.

Summary

Issues Involved:
1. Assessment of income under the head long-term capital gains on surrender of tenancy rights.
2. Deletion of additions on account of unexplained sales.
3. Validity of invoking Section 153C based on documents found during a survey and statements recorded.
4. Validity of addition based on alleged on-money receipts.
5. Issuance of notice under Section 143(2) within the prescribed time.

Detailed Analysis:

1. Assessment of Income under Long-term Capital Gains:
The assessee contested the addition of ?7,71,000/- as long-term capital gains on surrender of tenancy rights. The CIT(A) upheld the AO’s decision, but the Tribunal found no merit in this addition. The Tribunal noted that the assessee was only a tenant and did not receive any consideration for the surrender of tenancy rights. The provisions of Section 50C were deemed inapplicable to the surrender of tenancy rights, and the addition was directed to be deleted.

2. Deletion of Additions on Account of Unexplained Sales:
The Revenue appealed against the deletion of ?2,91,29,314/- on account of unexplained sales. The Tribunal upheld the CIT(A)’s decision to delete the addition, noting that no incriminating material was found during the search at the premises of Haresh Patel that pertained to the assessment year in question. The Tribunal emphasized that the documents found during the survey were not sufficient to justify the addition, and the assessment lacked jurisdiction under Section 153C.

3. Validity of Invoking Section 153C:
The Tribunal scrutinized the basis for invoking Section 153C, which was predicated on documents found during a survey at the assessee’s office and not during the search at Haresh Patel’s premises. It was highlighted that the documents did not pertain to the assessment year 2006-07, and no satisfaction note was drawn by the AO. The Tribunal referenced the decision in the case of Giriraj Developers and other judicial precedents to conclude that the invocation of Section 153C was ill-founded and invalid.

4. Validity of Addition Based on Alleged On-money Receipts:
For the assessment year 2007-08, the AO made additions based on alleged on-money receipts noted on page 5 of the impounded material. The CIT(A) restricted the addition to 17%, deleting the remaining 83%. The Tribunal found that the presumption of on-money receipts was not substantiated with concrete evidence. Statements from customers confirmed no cash payments, and the assessee had already offered ?1 crore to cover any discrepancies. The Tribunal directed the deletion of the addition based on extrapolation, emphasizing the lack of corroborative evidence.

5. Issuance of Notice under Section 143(2):
The assessee raised an additional ground regarding the non-issuance of notice under Section 143(2) within the prescribed period. The Tribunal noted that the facts were not clear from the record and restored the issue to the AO for verification and decision as per law.

Conclusion:
The Tribunal dismissed the Revenue’s appeals and allowed the assessee’s appeals in part. The addition of ?7,71,000/- on account of long-term capital gains was deleted, and the addition based on alleged on-money receipts was restricted to ?8,90,000/-, covered by the ?1 crore already offered by the assessee. The issue of notice under Section 143(2) was remanded to the AO for fresh consideration.