2016 (8) TMI 22 - AT - Income Tax

Additions made on the basis of seized material - Held that - Additions can be made to the income of the assessee, while passing the 153 orders if reliance is placed on incriminating seized material. In the case before us, nothing is on record to prove that additions made by the AO had the backing of the seized material. Therefore, in our opinion the order of the FAA does not suffer from any legal infirmity. Confirming her order, we decide the effective Ground of appeal against the AO. Commissioner of Income-Tax-II, Thane Versus Continental Warehousing Corporation (Nhava Sheva) Ltd., All Cargo Global Logistics Ltd. 2015 (5) TMI 656 - BOMBAY HIGH COURT - Decided in favour of assessee.

Summary

Issues:
1. Assessment of income under different heads - business income vs. income from house property.
2. Application of Rule of consistency in Income Tax proceedings.
3. Validity of assessment based on seized material during search and seizure action.
4. Interpretation of legal provisions under section 153A of the Income Tax Act.

Analysis:
1. The Assessing Officer (AO) contended that the income received by the assessee from letting out flats should be assessed as 'business income' rather than income from house property. He argued that there was no bifurcation provided for the rent charged for the building and that charged for furniture and fixture. The AO disallowed depreciation claimed on the flats and held that the income should be taxed under the head income from house property. The First Appellate Authority (FAA) allowed the appeal of the assessee, citing the absence of incriminating material found during the search and seizure proceedings that could warrant a change in the assessment.

2. The AO asserted that the Rule of consistency does not apply to Income Tax proceedings, allowing for a departure from earlier stands taken by the revenue. However, the Appellate Tribunal disagreed, stating that a different stand can only be taken by the AO if it can be proven that the facts for a particular year were distinguishable from earlier years. In the absence of such distinguishing facts, the AO cannot adopt a new stance.

3. The FAA referenced legal precedents and held that assessments completed before the search and seizure action could only be disturbed if new material was unearthed during proceedings under section 153A of the Act. Since no incriminating material was found during the search, the AO lacked the authority to alter the findings of the completed assessments. The Tribunal upheld the FAA's decision, emphasizing the necessity of incriminating material to support any additions to the assessee's income.

4. The Tribunal referred to a judgment by the Hon'ble Jurisdictional High Court regarding the availability of fresh material during search proceedings and subsequent assessment procedures. It was concluded that additions to the assessee's income could only be made based on incriminating seized material. As there was no evidence to support the AO's additions, the Tribunal confirmed the FAA's order and dismissed the appeal filed by the AO.

In conclusion, the Tribunal upheld the FAA's decision, emphasizing the importance of incriminating material to support any alterations in the assessment of income. The appeal filed by the AO was consequently dismissed.