2017 (12) TMI 256 - AT - Income Tax

Reopening of assessment - no payment was made by the assessee-company during the previous year - loose sheet obtained in the residential premises - Held that - The loose sheet was obtained in the residential premises of Shri D.V. Naidu which does not indicate that the assessee-company made a payment of ₹ 1 Cr. In fact in the same sheet another sum of ₹ 10 lakhs was shown to have been paid to the seller, but it was offered to tax in the hands of Shri D. Srinivas and neither any comment was made by the Assessing Officer in that regard nor added in the hands of the assessee-company, which is an indication that the figures mentioned in the loose sheet need not automatically be treated as undisclosed income of the assessee. In other words, it cannot be treated as an incriminating material so as to initiate proceedings u/s 148 of the Act in the hands of the assessee, as rightly pointed by the Hon ble Gujarat High Court in the case of Varshaben Sanatbhai Patel vs. ITO (2015 (11) TMI 934 - GUJARAT HIGH COURT ) - Decided in favour of assessee.

Issues Involved:
1. Validity of reopening assessment under Section 148 of the Income Tax Act.
2. Applicability of Section 153A versus Section 147 for the assessment year in question.
3. Treatment of alleged unexplained investment of ?1 crore as income of the assessee-company.

Detailed Analysis:

1. Validity of Reopening Assessment under Section 148:
The assessee-company contended that the reopening of the assessment under Section 148 was invalid since it was based on documents found during a search at the residence of the Managing Director (MD). The assessee argued that the proper procedure should have been to issue a notice under Section 153A, as the search and seizure operation pertained to the MD's residence. The Assessing Officer (A.O.) countered this by stating that the reopening was based on fresh evidence found during the search, and the reopening was done with the prior approval of the Commissioner of Income Tax (CIT) (Central).

The CIT(A) upheld the A.O.'s action, stating that the provisions of Section 153A cover six years, and since the assessment year (A.Y.) 2003-04 was beyond this period, reopening under Section 148 was valid. The Tribunal, however, concluded that there was no incriminating material to justify the reopening of the assessment, and thus, the reopening under Section 148 was invalid.

2. Applicability of Section 153A versus Section 147:
The assessee argued that once Section 153A proceedings are invoked, no recourse can be taken to Section 147 for reopening assessments. The CIT(A) observed that Section 153A covers only the immediately preceding six years, and this does not preclude the A.O. from taking action under Section 147 for years beyond this period. The CIT(A) referred to decisions from the Madhya Pradesh and Kerala High Courts to support this view.

The Tribunal noted that the search was conducted at the MD's residence, and the document in question was found there, not at the assessee-company's premises. It was highlighted that the document did not clearly indicate that the payment of ?1 crore was made by the assessee-company. Therefore, the Tribunal found that the A.O. did not have sufficient grounds to invoke Section 147 based on the seized document.

3. Treatment of Alleged Unexplained Investment of ?1 Crore:
The A.O. added ?1 crore to the assessee-company's income as 'unexplained investment' based on a document found during the search, which indicated a cash payment prior to 31.03.2003. The MD of the assessee-company admitted that the document related to a financial transaction for purchasing property but did not provide details about the source of the ?1 crore payment.

The CIT(A) upheld the addition, stating that the MD's sworn statement confirmed the payment, and the document indicated that the property was purchased by the assessee-company. The Tribunal, however, found that the document was not sufficient evidence to prove that the payment was made by the assessee-company. It was noted that another payment of ?10 lakhs mentioned in the same document was taxed in the hands of an individual, not the company. The Tribunal ruled that there was no incriminating material to support the addition of ?1 crore as unexplained investment by the assessee-company.

Conclusion:
The Tribunal concluded that the A.O. did not have sufficient grounds to reopen the assessment under Section 148, and there was no incriminating material to justify the addition of ?1 crore as unexplained investment. Consequently, the orders of the A.O. and the CIT(A) were set aside, and the appeal filed by the assessee was allowed.

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