2018 (4) TMI 1771 - AT - Income Tax

Assessment u/s 153A - Validity of making addition based on the seized paper if it constitutes an incriminating material or otherwise - HELD THAT - Regarding the Gevrai lands in question we find in the earlier assessment years relevant transactions on this land acquisition and sale are found duly accounted in the books of account/financial statements. This finding of ours is confirmed by the entries in the balance sheet Regarding sale transaction it is also evident that the amounts received by the assessee in response to proposed sale were also equally accounted in the books of account where name of Mr. Ajay Shivajirao Jadhav is found has received the amount of Rs. 2.90 crores against sale of Aurangabad Land (Gevrai Land) Mr. Amit Shivajirao Jadhav also received the equal amount. It is also an undisputed fact that other payments received by the assessee are found accounted in the books of account. It is also not the case of the Revenue that the assessee received on-money payments and there is evidence to support the same. It is an undisputed fact that in principle the said agreement to sale seized by the Department during the course of search seizure action is an accounted transaction and therefore it is not an incriminating document for the AO to rely on for making additions of any kind in the search assessment like the present one. In our view it is settled legal proposition of law that the additions if any have to be allowed to be made in the non-abated assessment only based on incriminating material. Addition on account of income from let out properties - HELD THAT - It is settled legal proposition that so long as Municipal values are available the same becomes bindings and therefore the decision of the AO in calculating the rental value based on any other method is unsustainable in law. Therefore the above conclusion drawn by the CIT(A) on this issue is fair and reasonable and it does not call for any interference. Accordingly the grounds raised by the Revenue are dismissed. Addition on account of adhoc declaration made during search proceedings carried out u/s.132 - HELD THAT - We find the AO has merely relied on the statement given by the assessee and he did not go into the issues that requires disclosure of additional income of Rs. 54 lakhs. On these facts we find the issue requires remanding to the file of AO for verification of the seized material. We find the Pune Bench of the Tribunal in the case of Poonawalla Investments and Industries Pvt. Ltd. 2018 (4) TMI 1770 - ITAT PUNE it is evident that the onus is on the AO to establish the omissions and commissions if any before taxing the buffer disclosure of Rs. 54 lakhs by the AO. As such AO did not examine this aspect of the issue. Therefore with similar directions to the AO we remand the issue to the file of AO (supra). Accordingly this issue is adjudicated pro tanto. The grounds raised by the assessee are allowed for statistical purposes.

Summary

Issues Involved:
1. Validity of making additions without incriminating material in a case of unabated assessment.
2. Adoption of Municipal Tax value for taxing income from house property.
3. Classification of profits from the sale of land as an adventure in the nature of trade.
4. Adhoc declaration made during search proceedings and subsequent retraction.

Issue-Wise Detailed Analysis:

1. Validity of Making Additions Without Incriminating Material in a Case of Unabated Assessment:
- The assessee argued that the additions made by the AO were unsustainable as they were based on non-incriminating material in a non-abated assessment. The return filed on 31-07-2008 was considered a completed assessment, and no notice under section 143(2) was issued before the search on 08-09-2010.
- The AO made additions based on the Municipal Tax value for income from house property and profits from the sale of Gevrai lands. The assessee contended that these additions were not backed by incriminating material found during the search.
- The Tribunal held that the additions in a non-abated assessment must be based on incriminating material found during the search. Since the agreement to sell Gevrai land was already accounted for in the books, it did not constitute incriminating material. The Tribunal allowed the assessee's objection, emphasizing that additions in non-abated assessments should be based on incriminating material.

2. Adoption of Municipal Tax Value for Taxing Income from House Property:
- The AO estimated the annual let-out value of vacant house properties at 7% of the investment value, while the CIT(A) directed the AO to adopt the Municipal Tax value.
- The Tribunal upheld the CIT(A)'s decision, stating that the Municipal valuation represents the annual rental value of the property and should be used for determining the annual let-out value. The Tribunal dismissed the Revenue's appeal on this issue, confirming that the Municipal value should be used for calculating rental income.

3. Classification of Profits from the Sale of Land as an Adventure in the Nature of Trade:
- The Revenue argued that the sale of Gevrai land constituted an adventure in the nature of trade and should be taxed as business profits.
- The CIT(A) had held that the sale of Gevrai land was not an adventure in the nature of trade and directed the AO to accept the assessee's claim. The Tribunal agreed with the CIT(A), stating that the transactions related to the land were duly accounted for in the books and did not constitute an adventure in the nature of trade. The Tribunal dismissed the Revenue's appeal on this issue.

4. Adhoc Declaration Made During Search Proceedings and Subsequent Retraction:
- The assessee retracted a declaration of Rs. 54 lakhs made during the search proceedings, arguing that it was made under pressure and without any corresponding evidence.
- The AO and CIT(A) did not accept the retraction, stating that the declaration was made voluntarily and after consulting advisors. The Tribunal, however, found that the AO did not verify the seized material to justify the addition of Rs. 54 lakhs.
- The Tribunal remanded the issue to the AO for verification of the seized material, emphasizing that the AO must establish omissions or commissions before taxing the buffer disclosure. The Tribunal allowed the assessee's appeal for statistical purposes, directing the AO to re-examine the issue.

Summary of Judgments:
- The Tribunal allowed the Cross Objection of the assessee for A.Y. 2008-09, dismissing the Revenue's appeal for the same year.
- The Tribunal dismissed the Revenue's appeal for A.Y. 2009-10, confirming the CIT(A)'s decision on adopting Municipal Tax value for rental income.
- The Tribunal dismissed the Revenue's appeal for A.Y. 2010-11 on the same grounds as A.Y. 2009-10.
- The Tribunal remanded the assessee's appeal for A.Y. 2010-11 to the AO for re-examination of the Rs. 54 lakhs disclosure, allowing the appeal for statistical purposes.

Conclusion:
The Tribunal's judgment emphasized the importance of incriminating material in making additions in non-abated assessments, upheld the use of Municipal Tax value for rental income, and remanded the issue of adhoc declaration for further verification by the AO.