2015 (11) TMI 1877 - AT - Income Tax

Assessment u/s 153A - requirement of issue and service of notice u/s 143(2) - HELD THAT - We find that the judgment of Hon'ble Allahabad High Court in the case of Rajeev Sharma 2010 (5) TMI 600 - ALLAHABAD HIGH COURT is in the context of assessment u/s 147 whereas the judgment of Hon ble Delhi High Court in the case of Ashok Chaddha 2011 (7) TMI 252 - DELHI HIGH COURT is in the context of assessment u/s 153A and in this judgment, it was held that the requirement of issue and service of notice u/s 143(2) is not applicable in the assessment made in compliance to notice u/s 153A. We also find that in the case of Rajeev Sharma 2010 (5) TMI 600 - ALLAHABAD HIGH COURT the decision of Hon'ble Allahabad High Court is in favour of the assessee but the same is in the context of section 147 of the Act - Thus in the present case also, we follow the judgment of Hon'ble Delhi High Court and decide the issue against the assessee. Accordingly, ground of the assessee are also rejected. Whether no incriminating material having been found during the course of search seizure action under section 132(1)? - We find that it was held by Hon'ble Allahabad High Court in the case of Raj Kumar Arora 2014 (10) TMI 255 - ALLAHABAD HIGH COURT that the reasons given by the Tribunal that no material was found during search cannot be sustained and it is also held by Hon'ble Allahabad High Court that the Assessing Officer has the power to reassess the income of the assessee not only for the undisclosed income which was found during search but also with regard to the material that was available at the time of original assessment. Respectfully following this judgment of Hon'ble Allahabad High Court, we hold that there is no merit in ground and the same is also rejected. Undisclosed expenditure of 7% in respect of India Millennium Bond of 50,000 US - As seen that this issue is covered in favour of the assessee by the judgment of Hon'ble Allahabad High Court rendered in the case of Kanchan Singh 2008 (5) TMI 641 - ALLAHABAD HIGH COURT held there is no reason to doubt the genuineness of gift by Shri K. C. Kapadia to the assessee and therefore, the assessee was able to establish the nature and source of the money because the same were the maturity proceeds of four bonds purchased by Shri K. C. Kapadia on 1st October 1998 and therefore, no addition can be made in assessment year 2004-05. In the present case also, India Millennium Bond of US 50,000 were gifted by Jayesh Arvind Bhai Patel of Dubai to the assessee as gift letter dated 18/06/2001. This IMD Bond Certificate was issued by SBI on 05/01/2001 in US . This date falls in previous year 2000-2001 relevant to assessment year 2001-02 and therefore, as per this judgment of Hon'ble Allahabad High Court cited by Learned A. R. of the assessee, no addition can be made in the present assessment year being assessment year 2002- 03. Hence, respectfully following this judgment of Hon'ble Allahabad High Court, this addition regarding India Millennium Bond is deleted and as a result the second addition of ₹ 17,564/- being alleged undisclosed expenditure of 7% in respect of India Millennium Bond of 50,000 US equal to ₹ 24,50,918/- is also deleted. Accordingly ground of assessee are allowed.

Summary

Issues Involved:

1. Deletion of additions made under section 153A.
2. Validity of jurisdiction to issue notice under section 153A.
3. Requirement of notice under section 143(2) in proceedings under section 153A.
4. Addition of income based on incriminating material found during search.
5. Addition related to Indian Millennium Deposit (IMD) and undisclosed expenditure.

Issue-wise Detailed Analysis:

1. Deletion of Additions Made Under Section 153A:

The Revenue challenged the deletion of additions of Rs. 99,00,000 and Rs. 4,95,000 by the CIT(A), arguing that under section 153A, the AO was required to determine the total income, including undisclosed income in the form of gifts. The assessee contended that these additions could not be made in the assessment framed under section 153A as the original assessment under section 143(3) and related appeals had not abated. The Tribunal found merit in the assessee's argument, referencing the CIT(A)'s order and the Hon'ble Allahabad High Court's judgment, which directed that such additions should be decided in the appeal against the section 143(3) order. Consequently, the Tribunal upheld the CIT(A)'s deletion of the additions, dismissing the Revenue's appeal.

2. Validity of Jurisdiction to Issue Notice Under Section 153A:

The assessee argued that the AO lacked jurisdiction to issue notice under section 153A and make a second assessment for the assessment year 2002-03, as the appellant was not the person subjected to search, and no assessment-related proceedings were pending. However, these grounds were not pressed by the assessee during the hearing, and thus, the Tribunal rejected them as not pressed.

3. Requirement of Notice Under Section 143(2) in Proceedings Under Section 153A:

The assessee claimed that the assessment order was void ab initio due to the lack of service of notice under section 143(2) after filing the return in compliance with section 153A. The Tribunal pointed out that the Hon'ble Delhi High Court in Ashok Chaddha vs. CIT held that the requirement of notice under section 143(2) is not applicable in assessments made under section 153A. The Tribunal followed this judgment over the Hon'ble Allahabad High Court's decision in Rajeev Sharma, which pertained to section 147 assessments. Thus, the Tribunal rejected the assessee's grounds, deciding the issue against the assessee.

4. Addition of Income Based on Incriminating Material Found During Search:

The assessee contended that no incriminating material was found during the search to justify the additions made. The Tribunal noted that the Hon'ble Allahabad High Court in Raj Kumar Arora held that the AO has the power to reassess returns not only for undisclosed income found during the search but also based on material available at the time of the original assessment. Following this judgment, the Tribunal rejected the assessee's ground.

5. Addition Related to Indian Millennium Deposit (IMD) and Undisclosed Expenditure:

The assessee challenged the addition of Rs. 26,22,482, which included the value of an IMD of 50,000 US$ and related undisclosed expenditure, arguing that the gift was genuine and executed through the State Bank of India under a government scheme. The Tribunal found that this issue was covered in favor of the assessee by the Hon'ble Allahabad High Court's judgment in Kanchan Singh vs. CIT, which dealt with a similar scheme (Resurgent India Bond). The High Court had held that such bonds, purchased by NRIs against foreign currency and gifted to the assessee, did not warrant addition in the hands of the donee. Applying this precedent, the Tribunal deleted the addition related to the IMD and the associated undisclosed expenditure, allowing the assessee's grounds.

Conclusion:

The Tribunal dismissed the Revenue's appeal and partly allowed the assessee's appeal, providing a detailed analysis and application of relevant judicial precedents to each issue involved. The judgment underscores the importance of jurisdictional and procedural compliance in tax assessments, particularly under sections 153A and 143(3), and highlights the judicial interpretation of gift-related additions under specific government schemes.