2016 (6) TMI 282 - AT - Income Tax

Assessment u/s 153C - addition of ₹ 1.5 crores cash component - Held that - We come to learned counsel submission that the Assessing Officer has himself proceeded against the co-vendors u/s. 153C of the Act. There is no material placed before us as to whether those cases satisfied all the relevant conditions for exigibilty of section 153C or not i.e. they furnished their returns and no notice u/s. 143(2) had been served on them or its limitation had expired. This argument therefore does not rescue the assessee. We reject his legal ground challenging validity of section 143(3) assessment by concluding facts of the instant case as narrated in preceding paragraphs do not satisfy all necessary conditions u/s. 153C(2) of the Act for issuing corresponding notices. Addition of cash component - assessee s plea is that the same has to be equally divided in case of all the five partners - Held that - It transpires that his two partners S/sh Amit K. Patel and Narendra R. Patel had already waived off their interests in revenue record on 25-04-2008 in Shri Darji s favour. The same precedes the impugned seized material dated 03-05-2008 and 13-05-2008. The assessee accordingly acquired 60% interest in land in question. This fact is evident from the contents of the registered sale deed dated 17-11-2009. We are of the view that 60% of the impugned cash amount of ₹ 1.5 crores coming to ₹ 90 lacs has to be assessed in assessee s hands in any case even if his apportionment plea is accepted. Two co-shares/covendors have to be assessed for the remaining sums - Held that - We find that it is the assessee only who has signed the relevant documents revealing cash payments in question. He is the only person receiving even the cheque payments on behalf of other co-vendors. We are of the opinion that it was for the assessee to discharge a very strong onus for proving that the other co-vendors received the cash payments in question from him or from the vendees. He has failed to do so. This tribunal s proceedings are summary in nature based on reasonable preponderance of probabilities not requiring application of stricter provisions of evidence law. We observe in these facts that all these payment patterns are sufficient to conclude that it is assessee only who has received the impugned cash sum in tune with the cheque payments. We accordingly hold that the Ld. CIT(A) has rightly assessed the entire cash payment of ₹ 1.5 crores in assessee s hands thereby partly modifying Assessing Officer s action as extracted hereinabove. The corresponding grounds raised in the instant appeal accordingly fail. Whether the CIT(A) has erred in treating the impugned additions as his business income instead of short term capital gains - Held that - It has come on record that the assessee has purchased land in question having huge potential signed joined MOU and ventures, acquired agricultural land having old condition liable to premium for non-agricultural purposes and sold the same within a very short span of time after changing its usage in the impugned three assessment years. We draw inference from assessment year 2007-08 and 2008-09 as well subject matter of this very order to observe that this assessee has been acting in a well planned manner in real estate business thereby purchasing lands at cheaper rates and executing sales thereof at premium prices in addition to huge cash payments being received from the vendees. We uphold CIT(A) s action. The assessee s corresponding ground is accordingly rejected. Section 69 addition towards purchase of right from Shri Amit K.Patel and Narendra R. Patel and the latter addition of ₹ 1 lacs pertaining to purchase cost - Held that - Assessee could not refer to any material in order to rebut the findings of the lower authorities. There is no material placed before us explaining source of former addition amount. Coming to the latter addition of ₹ 1 lacs for calculating short term capital gains, we find that the lower appellate order holds that there is no evidence stating the cost of land to ₹ 9,12,000/- and not ₹ 1 lacs. Both these grounds are accordingly rejected.

Issues Involved:
1. Validity of Section 153C proceedings.
2. Correctness of unexplained investment addition under Section 69.
3. Legality of Section 143(3) proceedings.
4. Nature of income (business income vs. short-term capital gain).
5. Unexplained payment addition under Section 69.
6. Calculation of taxable gains.

Detailed Analysis:

1. Validity of Section 153C Proceedings:

The primary legal issue was the validity of Section 153C proceedings initiated against the assessees. The assessees argued that the Assessing Officer (AO) did not record the necessary satisfaction in the case of the searched party before initiating Section 153C proceedings. The tribunal emphasized that the AO must first form an opinion in the case file of the searched party that the seized material belongs to a third person, followed by a similar exercise in the latter’s case file. The tribunal found that the AO did not record such satisfaction in the searched party’s case, thus violating the mandatory condition for initiating Section 153C proceedings. Consequently, the tribunal quashed the assessments for the assessment years 2007-08 and 2008-09 for all three assessees.

2. Correctness of Unexplained Investment Addition Under Section 69:

For the first assessee, the AO made an addition of ?56,61,200/- as unexplained investment under Section 69, which was affirmed by the CIT(A). The tribunal quashed the assessment based on the invalidity of Section 153C proceedings, rendering this issue infructuous.

3. Legality of Section 143(3) Proceedings:

The tribunal examined whether the AO could proceed under Section 143(3) for the assessment year 2010-11. The assessee argued that the assessment year 2010-11 fell within the six preceding years from the date of receiving the records (14-07-2011) and should be assessed under Section 153C. The tribunal concluded that the conditions under Section 153C(2) were not satisfied, as the AO had issued a notice under Section 143(2) within the limitation period. Therefore, the AO rightly proceeded under regular assessment provisions, and the assessment under Section 143(3) was upheld.

4. Nature of Income (Business Income vs. Short-Term Capital Gain):

The CIT(A) treated the gains from the sale of land as business income instead of short-term capital gains, considering the transactions as an adventure in the nature of trade. The tribunal upheld this view, noting that the assessee had engaged in multiple transactions involving the purchase and sale of land within a short period, indicating a business motive.

5. Unexplained Payment Addition Under Section 69:

The AO made an addition of ?2,00,000/- under Section 69 for unexplained payments towards the purchase of rights from two co-vendors. The tribunal found no material to rebut the findings of the lower authorities and upheld this addition.

6. Calculation of Taxable Gains:

The assessee contested the calculation of taxable gains, arguing that the entire cash component should be equally divided among all partners. The tribunal noted that the assessee had already declared ?36 lakhs in the return, exceeding his share of ?30 lakhs. The tribunal found that the assessee had acquired 60% interest in the land and was the only person receiving payments. Therefore, the tribunal upheld the CIT(A)’s calculation of taxable gains, confirming the addition of ?1,50,91,800/- as business income.

Conclusion:
- Appeals for assessment years 2007-08 and 2008-09 were allowed, quashing the assessments based on invalid Section 153C proceedings.
- Appeal for the assessment year 2010-11 was dismissed, upholding the assessment under Section 143(3) and confirming the additions made by the AO and CIT(A).

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