2017 (12) TMI 44 - AT - Income Tax

Validity of proceedings u/s 153C - proof of any incriminating material found in search - Held that - Hon ble Apex Court in the case of CIT v. Sinhagad Technical Education Society 2017 (8) TMI 1298 - SUPREME COURT OF INDIA has held that section 153C can be invoked only when incriminating materials assessment year-wise are recorded in satisfaction note which is missing here. Therefore, the proceedings drawn u/s 143(3) as against 153C are invalid for want of any incriminating material found for the impugned assessment year. In view of the above, the additional grounds raised by the assessee in the case of M/s Pavitra Realcon Pvt. Ltd. and M/s Delicate Real Estate Pvt. Ltd. are accepted. Since the assessee succeeds on this legal ground, we refrain ourselves from adjudicating the issue on merit as far as these two cases are concerned. Coming to Design Infracon (P) Ltd., we find from the material available on record that there is brazen violation of principles of natural justice inasmuch as neither the statement of Mr. Jain recorded at the time of search nor his cross-examination was provided to the assessee by both the lower authorities despite specific and repeated requests made by the assessee in this regard. We find in the present case both the Assessing Officer and the CIT (A) are looking for proof beyond doubt which is not possible and they are basing their decision on an element of suspicion. It has been held in various decisions that presumptions and surmises, however strong may be, cannot be the basis for any addition. In view of our above discussion, we are of the considered opinion the ld. CIT (A) was not justified in confirming the addition made by the Assessing Officer. Therefore, the order of the CIT (A) is set-aside and the Assessing Officer is directed to delete the addition made in the hands of Design Infrcon Pvt. Ltd. The grounds raised by the assessee are accordingly allowed. - Appeal of assessee allowed.

Summary

Issues Involved:
1. Unlawful/illegal assumption of jurisdiction by the Assessing Officer.
2. Violation of principles of natural justice and denial of proper opportunity of being heard.
3. Utilization of material seized under Section 132 from third parties.
4. Addition of income under Section 68 of the Income Tax Act, 1961.
5. Non-acceptance of tripartite agreement/MoU and forfeiture of amount.
6. Validity of assessment framed under Section 143(3) instead of Section 153C.
7. Non-deletion of interest charged under Section 234B of the Income Tax Act.
8. Additional legal grounds under Rule 11 of ITAT rules.

Detailed Analysis:

1. Unlawful/illegal assumption of jurisdiction by the Assessing Officer:
The appellants argued that the Assessing Officer unlawfully assumed jurisdiction, making the orders void ab initio. The Tribunal noted that the Assessing Officer recorded satisfaction under Section 153C in the cases of Delicate Realtors Pvt. Ltd. and Pavitra Realcon Pvt. Ltd. on 27th July 2012. However, no notice under Section 153C was issued for the impugned assessment years, and the assessments were completed under Section 143(3). The Tribunal held that the assessment completed under Section 143(3) is invalid as the correct procedure under Section 153C was not followed.

2. Violation of principles of natural justice and denial of proper opportunity of being heard:
The appellants claimed that the Assessing Officer and CIT (A) violated principles of natural justice by not providing adequate opportunity to be heard and not allowing cross-examination of witnesses. The Tribunal found merit in this argument, particularly in the case of Design Infracon Pvt. Ltd., where the statement of Mr. Jain recorded at the time of search was not provided to the assessee, nor was cross-examination allowed. This was deemed a violation of natural justice, rendering the proceedings invalid.

3. Utilization of material seized under Section 132 from third parties:
The appellants contended that the material seized from third parties (Sh. S.K. Jain and Sh. V.K. Jain) was used without following mandatory provisions of the law. The Tribunal observed that the materials seized from third parties were not corroborated independently, and the procedure under Section 153C was not followed. Therefore, the utilization of such material was not permissible.

4. Addition of income under Section 68 of the Income Tax Act, 1961:
The CIT (A) confirmed the addition of substantial amounts as income under Section 68, relying on material seized from third parties and statements recorded. The Tribunal noted that the addition was made without proper corroboration and in violation of natural justice principles. The Tribunal also emphasized that the amount received was through normal banking channels and related to advances for land purchases, which could not be subjected to Section 68 provisions.

5. Non-acceptance of tripartite agreement/MoU and forfeiture of amount:
The appellants argued that the tripartite agreement/MoU and the forfeiture of the amount were genuine and should be accepted. The Tribunal found that the CIT (A) erred in not accepting the genuineness of the MoU and the factum of forfeiture. The Tribunal held that since arbitration proceedings were ongoing, there was no accrual of income pending litigation, and the amount could not be taxed.

6. Validity of assessment framed under Section 143(3) instead of Section 153C:
The appellants raised additional legal grounds challenging the validity of the assessment under Section 143(3) instead of Section 153C. The Tribunal agreed with the appellants, stating that the assessment for AY 2011-12 should have been framed under Section 153C, and the failure to do so rendered the assessment invalid.

7. Non-deletion of interest charged under Section 234B of the Income Tax Act:
The appellants argued that the interest charged under Section 234B should be deleted. The Tribunal held that this issue was consequential and directed the Assessing Officer to charge interest as per the provisions of the Income Tax Act after giving effect to the order.

8. Additional legal grounds under Rule 11 of ITAT rules:
The appellants raised additional legal grounds under Rule 11, challenging the validity of the proceedings and assumption of jurisdiction. The Tribunal admitted these grounds for adjudication and found merit in the appellants' arguments, leading to the conclusion that the assessments were invalid.

Conclusion:
The Tribunal allowed the appeals filed by the respective assessees, quashing the assessments framed under Section 143(3) and directing the deletion of the additions made under Section 68. The Tribunal emphasized the importance of following proper procedures under the Income Tax Act and upholding principles of natural justice.