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2022 (1) TMI 1351 - AT - Income TaxAssessment u/s 153A - Undisclosed income - Credits Transferred from Nagaland based entities - sufficient incriminating material found n search or not? - HELD THAT - As AR submitted that in the absence of any incriminating material on record, no such additions could have been made by AO. This plea could not be accepted since this is not a case wherein no incriminating material has been found. Rather, it is the finding of CIT(A) that several incriminating materials were seized which include blank letter head of Nagaland based persons / entities, blank cheques, notes / diaries containing details of payments received and transferred. The evidence relating to unexplained investment made in cash towards purchase of immoveable properties was also seized. Thus, this is a case where sufficient incriminating material has been found by investigation team which indicates undisclosed income of the assessee - Decided against assessee. Best judgement basis u/s 144 - As alleged by assessee no notice u/s 143(2) was issued - Assessment Proceedings for AY 2018-19 - HELD THAT - As it was to be held that none of the conditions for invoking jurisdiction u/s 144 was satisfied by Ld. AO which would vitiate the assessment proceedings. Further, the assessee has filed valid return of income and no notice u/s 143(2) has ever been issued before making assessment. The non-issuance of notice u/s 143(2), in non-curable defect and therefore, assumption of jurisdiction and subsequent order passed u/s 144 becomes bad-in-law. The case laws as cited above clearly support the legal ground raised by the assessee. Therefore, we hold that the assessment order passed for this year fails on legal grounds and the consequential additions made therein become unsustainable. We order so. This being so, no further adjudication is required in the appeal for AY 2018-19. The assessee s appeal stand allowed on this ground alone. Addition based on statements recorded by investigation wing during the course of search operations from various persons - HELD THAT - The pre-existing statements recorded by the Investigation Wing could not form the sole basis of assessment. It could also be seen that Shri G.K. Rengma retracted the statement vide affidavit dated 01.04.2019 wherein he clarified that the statement was recorded incorrectly. The said retraction was supported by the audited financial statements of Shri G.K. Rengma as placed on record. The total turnover of Shri G.K. Rengma as reflected in these financial statements is much higher than the figures recorded in the statement. Under these circumstances, the third-party statements recorded from Shri G.K. Rengma as well as from other persons would lose evidentiary value. The statements of remaining persons i.e., land owners / various other contractors have never been independently examined by Ld. AO. The copies of statement were never confronted to the assessee and no opportunity of cross-examination was ever provided to the assessee. Accordingly, the ratio of decision of Hon ble Apex Court in Andaman Timber Industries 2015 (10) TMI 442 - SUPREME COURT would apply to the facts of the case and support the case of the assessee. Considering the same, no much weightage could be given to such statements and the same, on standalone basis, would not be sufficient to support the impugned additions. Addition under provisions of Sec.68 or 69 or 69A to 69D - as argued additions have been made merely on the basis of surmises, conjectures and on borrowed satisfaction without specifying the relevant sections under which additions have been made - HELD THAT - The onus of the assessee has to remain confine to the extent of credits received by the assessee in his own books of accounts and not any further. To hold any contrary position, Ld. AO must establish this fact otherwise no such debits / credits appearing in bank accounts of other parties could be deemed to be the income of the assessee. The assessee s onus u/s 68 in respect of entries in books / bank accounts of other persons is only secondary i.e., consequential upon the successful discharge of the primary onus by the A.O of establishing the assessee to be the actual owner of the books of account / bank accounts held in the names of other persons. This position has been held by Hon ble Supreme Court in the case of CIT Vs. Daulat Ram Rawatmull 1972 (9) TMI 9 - SUPREME COURT .Therefore, the credits appearing in the other bank accounts could not be held to be income of the assessee. Adjudication on Merits - Credit Entries Received from Nagaland bases entities / individual - HELD THAT - As we find that the debit / transfer entries aggregating to Rs.243.19 Crores have been treated to be the assessee s income on the allegation that assessee s unaccounted income has been routed through these accounts for the benefit of group as a whole. However, in para 7.10, we have already taken a position that the credit transfer received by the other family members and group concerns could not be assumed to be assessee s undisclosed income since it is nowhere been established by the lower authorities that the assessee was de-facto owner of either Nagaland based bank accounts or the owner of bank accounts of various recipients. The other family members and group concerns of the assessee were separate Income Tax assessee and subjected to separate assessment. Therefore, the credit received in those accounts could not be held to be the assessee s income. Under these circumstances, the assessee s onus would remain confine to explain the credit received by it in his own bank accounts. Further, the assessment proceedings for AY 2018-19 have already been quashed by us on legal grounds. Therefore, at the outset, the addition, to that extent, could not be sustained in the hands of the assessee. Assessee s onus to prove the ingredients of Sec.68 with respect to unsecured loan received from Shri G.K. Rengma and M/s Excellence Associates - Undisputedly the transactions have taken place through banking channels. On the basis of all these documentary evidences, it could be said that the requisite onus as required to be discharged u/s 68 was duly discharged by the assessee and it was the onus of the revenue to dislodge the same - upon perusal of orders of lower authorities, we find that no cogent material or evidences are on record to dislodge the claim of the assessee rather the additions are based more on allegations, surmises, conjectures and mere suspicion. In such a case, these amounts could not be considered to be the assessee s undisclosed income. We order so. In the result, the addition to the extent of Rs.5,44,90,000/- is sustained under this head and the balance additions stand deleted. The corresponding grounds raised by the assessee in all the years stands partly allowed. Cash deposit in the bank accounts of the assessee - Since the assessee group has incorporated the alleged cash payment of Rs.16.10 Crores for purchase of immoveable properties in these cash flow statements, the separate addition made to that extent would also not be sustainable. Even otherwise, the properties have not been purchased by the assessee rather this addition is subject matter of consideration in other family members / entities which are separate taxable entities and therefore, the addition for those entities would not be sustainable in the hands of the assessee. Other Credit Entries in Bank Account of the assessee and other family members / entities - Since the assessment for AY 2018-19 has been quashed by us, the additions to that extent are otherwise not sustainable. The remaining credit entries for Rs.353.64 Lacs pertain to AYs 2012-13 2017-18. Out of this amount, the assessee has identified amount of Rs.88.50 Lacs being the entries which are lacking complete details / supporting evidences. The remaining entries are either not in the nature of income and a part of these entries has already been disclosed under IDS 2016. Few of the entries have already been disclosed in the Income Tax Returns of the assessee. The complete details of these entries have been placed by the assessee on page numbers 58 and 59 of Paper Book No.3A. We have perused the same. We find that all the other credit entries are in the nature of maturity proceeds of LIC, Chit money received by the assessee, directors loan withdrawn, mutual funds proceeds from UTI, refunds etc. These entries are not in the nature of assessee s income. Therefore, the additional amount of Rs.88.50 Lacs as worked out by the assessee is found to be correct and therefore, sustained in the hands of the assessee. The remaining addition stands deleted since the same is not the in nature of income. Credit for income disclosed under IDS 2016 has not been given to the assessee - We find that this credit was not given in the absence of requisite declarations / certificates forthcoming form the assessee. The assessee has now placed all these documents in the paper book which has been detailed in Table 35 of written submissions. Further, the assessee has already considered such declaration while working out additional income which has also been accepted by us. Therefore, the assessee is left with no grievance on this account. Non consideration of additional evidences / documents as filed by the assessee before Ld. CIT(A) on 15.03.2021 and 16.09.2021 - Since, we have substantially accepted the working of the assessee which has been considered after incorporating all these evidences, the assessee is left with no grievance on this issue. The remaining grounds are either general or consequential in nature which does not require any specific adjudication on our part.
Issues Involved
1. Validity of assessment proceedings under Section 153A. 2. Jurisdiction and validity of assessment proceedings for AY 2018-19. 3. Violation of principles of natural justice. 4. Additions based on third-party statements without cross-examination. 5. Additions based on surmises and conjectures. 6. Credit entries received from Nagaland-based entities. 7. Cash deposits in bank accounts. 8. Credit entries in bank accounts of the assessee and family members. 9. Credit for income disclosed under IDS 2016. Detailed Analysis 1. Validity of Assessment Proceedings under Section 153A The assessee challenged the assessment proceedings on the grounds that no incriminating material was found during the search. However, the Tribunal upheld the validity of the assessment proceedings, noting that several incriminating materials, such as blank letterheads, cheques, and notes detailing payments, were found. The Tribunal referenced the Kerala High Court decision in E.N. Gopakumar, which held that incriminating material is not a prerequisite for assessment under Section 153A. 2. Jurisdiction and Validity of Assessment Proceedings for AY 2018-19 The assessee contested the jurisdiction of the Assessing Officer (AO) in framing the assessment under Section 144 without issuing a notice under Section 143(2). The Tribunal found that the AO acted prematurely by treating the return of income as invalid before the expiration of the 120-day period for e-verification. The Tribunal also noted the absence of a show-cause notice under Section 144 and the mandatory notice under Section 143(2), rendering the assessment proceedings invalid. Consequently, the Tribunal quashed the assessment for AY 2018-19. 3. Violation of Principles of Natural Justice The assessee argued that the AO's actions prevented them from approaching the Income Tax Settlement Commission (ITSC) and that the assessments were completed hastily. The Tribunal acknowledged the chronology of events but noted that the assessments were framed in accordance with the law after obtaining due approvals. The Tribunal found no violation of natural justice, although it suggested that voluntary income computations intended for disclosure before the ITSC should be considered. 4. Additions Based on Third-Party Statements Without Cross-Examination The assessee contended that the additions were based solely on third-party statements without providing an opportunity for cross-examination. The Tribunal noted that certain statements were recorded by the investigation wing and used to support the additions. However, no independent investigation or verification was done by the AO, and the statements were not confronted to the assessee. The Tribunal found that the statements lacked evidentiary value and could not solely support the additions, referencing the Delhi High Court decision in PCIT vs. Smt. Krishna Devi and the Supreme Court decision in Andaman Timber Industries vs. CCE. 5. Additions Based on Surmises and Conjectures The assessee argued that the additions were made on the basis of surmises and conjectures without specifying the relevant sections under which they were made. The Tribunal concurred, noting that the AO failed to establish that the assessee was the de-facto owner of the bank accounts of Nagaland-based entities or the recipients. The Tribunal held that the onus under Section 68 remains confined to the credits received by the assessee in his own bank accounts. 6. Credit Entries Received from Nagaland-Based Entities The Tribunal found that the credit entries from Nagaland-based entities were regular business transactions and that the AO failed to establish that the credits represented the assessee's undisclosed income. The Tribunal noted that the assessee had provided substantial documentary evidence, including PAN, Aadhar, income tax exemption certificates, and audited financial statements, to prove the identity, creditworthiness, and genuineness of the transactions. The Tribunal upheld the addition of Rs. 5.44 Crores, which the assessee had computed for disclosure, and deleted the remaining additions. 7. Cash Deposits in Bank Accounts The Tribunal found that the cash deposits in the bank accounts of the assessee and family members were explained through cash flow statements, which incorporated all accounted and unaccounted cash entries. The Tribunal sustained the addition of Rs. 5.35 Crores, representing the cash deficit worked out by the assessee, and deleted the remaining additions. The Tribunal also noted that cash deposits in the accounts of family members and group entities could not be held as the assessee's income. 8. Credit Entries in Bank Accounts of the Assessee and Family Members The Tribunal found that the credit entries in the bank accounts of family members and group entities could not be treated as the assessee's income. The Tribunal sustained the addition of Rs. 88.50 Lacs, representing entries lacking complete details, and deleted the remaining additions. 9. Credit for Income Disclosed Under IDS 2016 The Tribunal found that the assessee had provided the requisite declarations and certificates for income disclosed under IDS 2016. The Tribunal noted that the assessee had already considered such declarations while working out additional income, leaving no grievance on this account. Conclusion The Tribunal partly allowed the appeals for AYs 2012-13 to 2017-18, sustaining specific additions and deleting others. The appeal for AY 2018-19 was allowed on legal grounds, quashing the assessment for that year.
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