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2017 (10) TMI 1544 - AT - Income TaxValidity of assumption of jurisdiction u/s 148 - Assessment u/s 147 consequent to assessment u/s 153C - assessment framed u/s 153A in relation to undisclosed income - HELD THAT - In the present case original assessments were made u/s 143(3) r.w.s. 153A of the Act vide order dated 28/12/2010. Subsequently consequent to search operations in the case of Smt. Adlene Kagoo material disclosing alleged payment to appellant was found. The AO had proceeded to make assessment by issuing notice u/s 148. Whether the AO was correct in law in assuming jurisdiction u/s 148 when the provisions of section 153C of the Act prescribe a separate scheme of assessment in the case of material found as a result of search in the case of third parties ? - A similar issue had arisen in the context of block assessment prescribed under Chapter XIV-B of the Act and these provisions were subsequently substituted by inserting sections 153A 153B 153C and 153B in Chapter XIV. But the spirit of both old provisions and new provisions remained same. As relying on Cargo Clearing Agency (Gujarat) 2008 (8) TMI 86 - GUJARAT HIGH COURT wherein held Once assessment has been framed u/s 158BA in relation to undisclosed income for the block period as a result of search there is no question of the Assessing Officer issuing notice u/s 148 for reopening such assessment as the said concept is abhorrent to the special scheme of assessment of undisclosed income for block period - no notice u/s 148 is required to be issued for the purpose of proceeding under Chapter XIV-B. Consideration received on cancellation of any agreement to sell or JDA - Also from perusal of reasons recorded it cannot be inferred that there is income in the hands of the appellant even if there is payment to appellant but there is nothing on record suggesting that it constitutes income in the hands of the appellant. Even assuming for a moment that the contention of the AO that payments were made towards consideration for cancellation of Joint Development Agreement (JDA) which the assessee had entered with in respect of property at survey Nos.3/3 7 8 9/2A 9/213 Mallasandra. In the absence of evidence that the appellant is the owner had interest of any nature in the said property it cannot be said that the payments constituted taxable income in the hands of the appellant. One cannot come to conclusion that the payments constituted taxable income in the hands of the assessee - even assuming that these payments were made towards consideration of cancellation of JDA same does not represent taxable income for period under consideration. It is only after insertion of clause (ix) to section 56(2) by Finance (No.2) Act 2014 w.e.f. 01/04/2015 that provisions of the Act have been amended to tax any consideration received on cancellation of any agreement to sell or JDA. Therefore viewed from any angle we cannot uphold the validity of assumption of jurisdiction u/s 147 - Decided in favour of assessee.
Issues Involved:
1. Validity of assumption of jurisdiction under Section 148 of the Income-tax Act. 2. Taxability of payments reflected in the dummy tally entries. 3. Consideration of evidence from search operations. 4. Presumption of income based on dummy tally entries. 5. Cross-examination of parties involved. 6. Declaration of amounts by third parties before the Settlement Commission. 7. Reliance on survey proceedings. 8. Assessment under Section 148 vs. Section 153C of the Income-tax Act. 9. Adequacy of reasons recorded for reopening assessments. Detailed Analysis: 1. Validity of Assumption of Jurisdiction under Section 148: The primary issue was whether the Assessing Officer (AO) correctly assumed jurisdiction under Section 148 of the Income-tax Act when the material was found as a result of a search operation under Section 132 in the case of a third party. The Tribunal held that the special procedure under Section 153C should have been invoked instead of Section 148. The Tribunal cited the case of Cargo Clearing Agency (Gujarat) vs. Joint CIT, where it was held that the special procedure for search cases should prevail over the normal procedure. Therefore, the assumption of jurisdiction under Section 148 was deemed invalid, and the impugned assessment orders were quashed. 2. Taxability of Payments Reflected in the Dummy Tally Entries: The AO assessed the payments reflected in the dummy tally entries as unaccounted income of the appellant. However, the Tribunal found that there was no conclusive proof that the payments constituted taxable income in the hands of the appellant. Even assuming the payments were made, there was no evidence suggesting that they were taxable. The Tribunal noted that the payments were allegedly made towards the cancellation of a Joint Development Agreement (JDA), but there was no evidence that the appellant had any interest in the property concerned. 3. Consideration of Evidence from Search Operations: The AO based the assessment on evidence found during a search operation in the case of a third party. The Tribunal emphasized that the material found in the search should have been assessed under the special procedure prescribed for search cases, i.e., Section 153C, rather than the normal reassessment procedure under Section 148. The Tribunal highlighted that the special procedure is designed to handle such cases and should have been followed. 4. Presumption of Income Based on Dummy Tally Entries: The AO presumed that the amounts reflected in the dummy tally entries constituted income in the hands of the appellant. The Tribunal found this presumption to be erroneous, stating that there was no evidence to support that the amounts were received by the appellant as taxable income. The Tribunal stressed that the onus was on the AO to prove that the amounts were taxable income, which was not done. 5. Cross-Examination of Parties Involved: The Tribunal noted that no addition could be made based on material found during a search in the case of a third party without cross-examining the parties involved. The appellant was not given an opportunity to cross-examine the parties from whom the material was seized, which was a significant procedural lapse. 6. Declaration of Amounts by Third Parties Before the Settlement Commission: The appellant contended that the amounts reflected in the dummy tally entries were declared by a third party before the Settlement Commission and tax was paid on them. The Tribunal found that the amounts were indeed declared by Shri Dayanand Pai before the Settlement Commission, and thus, the question of assessing the same amounts in the hands of the appellant did not arise. 7. Reliance on Survey Proceedings: The AO relied on survey proceedings conducted in the case of other entities to hold that the dummy tally entries should be treated as deemed income of the appellant. The Tribunal found that the appellant was not furnished with copies of these survey proceedings or any evidence recovered therein, making the reliance on such proceedings unjustified. 8. Assessment under Section 148 vs. Section 153C of the Income-tax Act: The Tribunal reiterated that the AO should have invoked Section 153C, which prescribes a separate scheme of assessment for cases involving material found during search operations in third-party cases. The Tribunal held that the AO's action of issuing notice under Section 148 was incorrect and contrary to law. 9. Adequacy of Reasons Recorded for Reopening Assessments: The Tribunal found that the reasons recorded for reopening the assessments were inadequate and did not justify the assumption of jurisdiction under Section 148. The Tribunal emphasized that the reasons should clearly indicate that the amounts constituted income in the hands of the appellant, which was not the case. Conclusion: The Tribunal allowed the appeals filed by the assessee, quashing the impugned assessment orders as invalid. The Tribunal held that the AO should have followed the special procedure under Section 153C for assessing income based on material found during search operations in third-party cases, and the assumption of jurisdiction under Section 148 was incorrect and contrary to law.
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