2019 (6) TMI 290 - AT - Income Tax

Assessment u/s 153C - Addition of on-money received on sale of flats - proof of incriminating material as found in the course of search - AO noted that during the course of search, unaccounted cash, jewellery and incriminating documents indicating suppression of sales, etc. were found and seized as per Panchanama prepared - HELD THAT - Although the AO has tried to establish nexus between incriminating material found during the course of search and other undisclosed asset to the assessee, but he has failed to prove the nexus between seized materials and business activity of the assessee and also receipt of on-money. Unless, the AO has brought out some cogent materials or evidences which establish receipt of on-money from sale of flats, no addition could be made, that too, on adhoc estimation of on-money on the basis of regular sales declared by the assessee. Statement recorded during the course of search including confession may be a best piece of evidence, but that by itself would not be conclusive evidence unless such statement is further supported by evidence in the form of incriminating material found during the course of search. The AO before estimating income has to bring on record some cogent materials to justify his action. In this case, on perusal of facts available on record, it is abundantly clear that nowhere the AO linked the seized material found during the course of search to the income estimated towards on-money received from sale of flats. While it is true that retraction by itself does not provide an impenetrable sheild to the concerned person, but it is also equally true that a statement per se by itself is not conclusive evidence. Supreme Court in the case of CIT vs Singhad Technical Education Society 2017 (8) TMI 1298 - SUPREME COURT has considered an identical issue and held that where incriminating material was found in the course of search, but was not related to the concerned years and hence, addition for those years could not be made in the assessment order passed u/s 153A of the Act. In this case, it is abundantly clear that there is nothing on record to indicate that there is a reference to seized material found during the course of search vis-a-vis addition made by the AO towards estimation of 30% on-money on total sales declared for the year. The Ld.CIT(A), after considering all these aspects, has rightly come to the conclusion that the addition made by the AO cannot be sustained either on jurisdictional issue or on merits. Hence, we are of the considered view that there is no reason to interfere with the findings of the Ld.CIT(A) insofar as deletion of addition made by the AO towards estimation of on-money @30% on sales declared by the assessee for the relevant assessment years. Hence, we are inclined to uphold the findings of Ld.CIT(A) and dismiss the appeal filed by the revenue.

Summary

Issues Involved:
1. Validity of proceedings initiated under section 153C of the Income-tax Act, 1961.
2. Addition towards estimation of on-money received on the sale of flats.
3. Reliance on statements recorded during the search and their subsequent retraction.

Detailed Analysis:

1. Validity of proceedings initiated under section 153C:

The primary issue was whether the proceedings initiated under section 153C were valid. The assessee argued that no incriminating material was found during the search that pertained to them, and thus, the initiation of proceedings under section 153C was void ab initio. The CIT(A) held that the necessary precondition for issuing notice under section 153C is that money, bullion, jewelry, or other valuable articles or documents belonging to a person other than the person searched should have been seized or requisitioned. In this case, there was no such seizure or requisition. The CIT(A) also noted that the assessment for AY 2009-10 was unabated as on the date of the search, and therefore, in the absence of any incriminating material, no addition could be made in the assessment framed under section 153C. The Tribunal upheld the CIT(A)'s findings, noting that the AO failed to establish a direct nexus between the seized materials and the assessee's business activities.

2. Addition towards estimation of on-money received on the sale of flats:

The AO estimated that the assessee received on-money at 30% over the registered sale value of flats based on statements recorded from the director and employees of the group during the search. The assessee contended that no incriminating material was found during the search to indicate receipt of on-money. The CIT(A) agreed with the assessee, stating that the statements relied upon by the AO did not provide sufficient evidence of on-money transactions, and the loose papers on which the AO placed heavy reliance did not mention the assessee or its projects. The Tribunal upheld the CIT(A)'s decision, noting that the AO failed to bring any corroborative evidence to support the statements of the director and employees.

3. Reliance on statements recorded during the search and their subsequent retraction:

The AO relied heavily on the statements of the director and employees recorded during the search, which were later retracted. The CIT(A) observed that retracted statements could only be relied upon if there was independent and cogent evidence to corroborate them. The Tribunal noted that while the AO referred to the statements of the director and employees, these statements were general and did not specifically attribute the receipt of on-money to the assessee. The Tribunal further noted that the AO failed to establish a direct nexus between the seized materials and the assessee's business activities, and there was no corroborative evidence to support the statements.

Conclusion:

The Tribunal upheld the CIT(A)'s decision to delete the addition made by the AO towards the estimation of on-money received on the sale of flats. The Tribunal found that the AO failed to establish a direct nexus between the seized materials and the assessee's business activities and that the statements relied upon by the AO were not corroborated by any independent evidence. The Tribunal also upheld the CIT(A)'s finding that the proceedings initiated under section 153C were void ab initio in the absence of any incriminating material found during the search. Consequently, all the appeals filed by the revenue were dismissed.