2018 (1) TMI 1076 - AT - Income Tax

Validity of proceedings u/s 153C - unexplained property purchased - eligibility of satisfaction note - Held that - When the property was purchased by the assessee through agreement to sale dated 05.05.2006 has already been disclosed in the regular books of account, therefore, the same could not be treated as undisclosed income of the assessee or incriminating material in nature against the assessee. AO in the assessment order did not question the aforesaid seized document i.e agreement to sale for the purpose of making any addition against the assessee. The reasons assigned by the AO in the satisfaction note were silent about any incriminating information or unaccounted or undisclosed hidden, income, seized by the Revenue from the assessee. The reasons recorded by the AO in the satisfaction note are factually incorrect or without sustenance because the property in question purchased on 05.05.2006 was already disclosed in the regular books of accounts for AY 2007-08. Therefore, there is no question of AO being satisfied with conditions of section 153C of the Act so as to initiate proceedings u/s 153C of the Act against the assessee. Reasons assigned by the AO in the satisfaction note were silent about any incriminating information or unaccounted or undisclosed hidden, income, seized by the Revenue from the assessee - Decided in favour of assessee

Summary

Issues Involved:
1. Validity of additions made under section 153A/153C without material found during search.
2. Legality of assessing or reassessing total income under section 153A without incriminating material.
3. Reference to material found during search for making additions.
4. Determination of annual letting value (ALV) of property.

Detailed Analysis:

1. Validity of Additions Made Under Section 153A/153C Without Material Found During Search:
The Revenue's appeals contested the CIT(A)'s decision that additions made without any material found during the search are outside the scope of section 153A/153C. The Tribunal upheld the CIT(A)'s view, emphasizing that the initiation of proceedings under section 153C requires that the seized documents or assets must be incriminating and belong to the assessee. The Tribunal cited the Supreme Court's decision in CIT vs Sinhgad Technical Education Society, which clarified that assessments under section 153C must be based on incriminating material found during the search.

2. Legality of Assessing or Reassessing Total Income Under Section 153A Without Incriminating Material:
The Tribunal agreed with the CIT(A) that assessments or reassessments under section 153A should be based on undisclosed income or property found during the search. The Tribunal referenced the Supreme Court's judgment in Manish Maheshwari vs ACIT, which mandates that the conditions of section 153C must be satisfied before initiating proceedings. The Tribunal noted that the agreement for sale dated 05.05.2006, which was the basis for the AO's satisfaction, was already disclosed in the regular books of accounts and did not constitute incriminating material.

3. Reference to Material Found During Search for Making Additions:
The Tribunal found that the AO's satisfaction note did not refer to any incriminating material found during the search. The Tribunal emphasized that the seized document, an agreement for sale, was already disclosed in the assessee's regular books of accounts. The Tribunal cited multiple judgments, including those from the Bombay High Court and the Gujarat High Court, which held that section 153C proceedings require the seized documents to be incriminating and belong to the assessee.

4. Determination of Annual Letting Value (ALV) of Property:
The Tribunal addressed the AO's determination of the ALV of the property, noting that the AO assumed the entire property was let out to M/s Today Hotels Pvt. Ltd. without any supporting material. The Tribunal upheld the CIT(A)'s decision to restrict the ALV to 1/3rd of the property, based on the assessee's claim and subsequent assessment orders. The Tribunal referenced its decision in a related appeal for AY 2010-11, where the AO accepted the assessee's claim regarding the leased area.

Conclusion:
The Tribunal dismissed the Revenue's appeals, affirming the CIT(A)'s findings that the additions made under section 153A/153C were not supported by any incriminating material found during the search. The Tribunal emphasized the necessity of incriminating material for initiating proceedings under section 153C and upheld the CIT(A)'s determination of the ALV based on the assessee's disclosed information.