2018 (1) TMI 711 - AT - Income Tax

Reopening of assessment - Money addition - addition in firm s hands - Taking right person - pre-existence of tangible material before forming reasons to believe of escapement - section 153C applicability instead reopening u/s 147 - Held that - Section 153C(1) of the Act before its amendment by the Finance Act 2015 w.e.f. 01.06.2015 provided for its application only if any money, bullion, jewellery or other valuable article or thing or books of accounts or documents seized or requisition belonged or belonged to a third person other than the searched assessee. Learned counsel fails to indicate any such material which can be stated to be belonging to the firm assessee so as to invoke Section 153C. We reiterate that the said provision is a special one in the nature of a complete code in itself which is applicable only in the specified circumstances. We therefore hold that once the said special provision s application is not attracted, the Assessing Officer herein had no other option but to set into motion the general provision u/s.148 of the Act after taking cognizance of Prajapatis statements binding the firm assessee as per the relevant provisions in partnership law. We thus reject the firm assessee s first argument hereinabove. We find no reason to concur with the firm assessees second argument as well challenging correctness of the impugned protective assessments in light of the abovestated case law starting with G K Consultants (2014 (7) TMI 680 - ITAT DELHI) dealing with an instance wherein no substantive assessment had been finalized. We repeat that this is not the case before us as the Assessing Officer had indeed framed corresponding substantive assessments in partner assessees cases (supra) making the very on money additions. The said case law are accordingly distinguished. We accordingly hold that the impugned protective assessment would become substantive in case the Revenue looses its appeals in the above partners cases hereinbelow. Third argument that both the lower authorities action making the impugned addition in firm s hands reduces partner assessees tax liability from 50% to 25% is also devoid of merits as the crucial test in such a case is to file the right assessee in whose hands such an income has to be assessed as per hon ble apex court s above referred judgment in Ch Atchaiah s case (1995 (12) TMI 1 - SUPREME Court). We have already concluded that the said right person herein has to be the firm assessee only. We therefore decline Mr. Talati s instant last argument as well - There is hardly any dispute that the relevant parcels of commercial as well as Lapkaman deals involve more than one co-owners. The said properties admittedly are co-owned without any demarcation of share in metes and bounds. None of the co-owners particularly in Lapkaman deals is sure as to where his corresponding share would be allotted. We therefore are of the view that it is humanly impossible in such cases that a single co-owner only collects all or a portion of the on money in question running into huge sums. We refer to Prajapatis search statements declaring ₹ 2crores on money as unaccounted income. The on money amount has been proportionately spread over in all these assessees cases. We accordingly quote reasonable preponderance of probability that the impugned on money has been proportionately received by all the co-owners to the extent of their respective shares. The assessee s instant argument is therefore rejected. - Decided against assessee. Revive on money addition qua 50% share of the instant partner assessessee in Sahyog Plaza - Held that - As we have already upheld the said addition in firm assessee s case after concluding that the same has to be made in the said partnership firm s hands u/s.184 of the Act. We therefore reject Revenue s instant substantive ground.

Issues Involved:
1. Validity of re-opening assessments under Section 147/148 of the Income Tax Act, 1961.
2. Legitimacy of protective assessments.
3. Substantive assessments of on-money transactions.
4. Applicability of Section 153C versus Section 148.
5. Cross-examination rights and provision of incriminating evidence.
6. Proportional distribution of on-money among partners and co-owners.

Detailed Analysis:

1. Validity of Re-opening Assessments under Section 147/148:
The firm assessees and individual partners challenged the re-opening of assessments under Section 147/148, arguing that all necessary details were provided during the original assessments, and no new information warranted re-opening. The CIT(A) upheld the re-opening, citing that the Assessing Officer had valid reasons based on information collected during a search indicating suppression of sales and expenses related to Sahyog Plaza.

2. Legitimacy of Protective Assessments:
The firm assessees contested the protective assessments, arguing that the on-money should be taxed in the hands of individual partners who had already accepted the income. The CIT(A) and ITAT upheld the protective assessments, noting that the substantive assessments were pending in the partners' cases. The ITAT emphasized that protective assessments are valid until substantive assessments are finalized.

3. Substantive Assessments of On-Money Transactions:
The substantive assessments involved on-money transactions related to Sahyog Plaza and Lapkaman lands. The CIT(A) and ITAT confirmed the additions based on the search statements and incriminating documents. The ITAT held that the firm should be taxed for on-money transactions as it was the right entity under Section 184 of the Indian Partnership Act, 1932, and the partners' admissions were binding on the firm.

4. Applicability of Section 153C versus Section 148:
The assessees argued that the re-opening should have been under Section 153C instead of Section 148. The ITAT rejected this argument, stating that Section 153C applies only if the seized material belongs to a third person, which was not the case here. The ITAT upheld the use of Section 148 for re-opening assessments based on the partners' statements and seized documents.

5. Cross-Examination Rights and Provision of Incriminating Evidence:
The assessees claimed they were not allowed to cross-examine the individuals whose statements were used for the assessments and were not provided with the incriminating evidence. The ITAT found that the relevant documents were part of the record and that the partners' statements, which did not directly name the assessees, were sufficient for the assessments. The ITAT emphasized the preponderance of probability in joint ownership cases.

6. Proportional Distribution of On-Money Among Partners and Co-Owners:
The ITAT addressed the issue of proportional distribution of on-money, holding that the firm and individual partners should be taxed based on their respective shares as per the partnership deed. The ITAT rejected the assessees' arguments that the on-money should be taxed solely in the hands of individual partners, affirming the assessments in the firm's hands to avoid under-assessment.

Conclusion:
The ITAT upheld the re-opening of assessments under Section 147/148, confirmed the protective assessments, and validated the substantive assessments of on-money transactions in the hands of the firm and individual partners. The ITAT rejected the applicability of Section 153C, affirmed the sufficiency of the provided evidence, and emphasized the proportional distribution of on-money among partners and co-owners.

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