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2019 (10) TMI 998 - AT - Income TaxAssessment u/s 153A - proof of incrementing material exhibiting escapement of taxable income - HELD THAT - No material was found during the course of search relating to this assessment year exhibiting escapement of taxable income or availability of undisclosed income for the purpose of assessment under section 153A of the Income Tax Act. If there is no material available, and on re-appraisal of that very material addition has been made by the AO, then such assessment order is not sustainable in the eyes of law, because, the AO has no jurisdiction to invoke section 153A in view of principle laid down by the Hon ble Delhi High Court in the case of Kabul Chawla 2015 (9) TMI 80 - DELHI HIGH COURT . No proceedings were pending on the date of search for this assessment. Therefore, nothing would abate for making a fresh assessment under section 153A of the Act. We have perused the comments of the AO at the time of hearing. The AO has not given any comments qua first fold of grievance shown by the assessee. His comments are related to various additions made by him with regard to unexplained income from Somnath building, agriculture income etc. Accordingly, we allow the appeal of the assessee, and quash the assessment order passed under section 153A Addition based on declaration made u/s 132(4) - HELD THAT - If something has been inherently gone wrong, at the time of search, then during the assessment proceedings, that facts should have been ascertained by the AO. It was for the AO to call for independent witness as well as accountant of the assessee in support of the report of the investigation wing. Onus is not upon the assessee. It is the AO who has to first establish that some undisclosed expenditure was incurred by the assessee and details recorded to that were found. On the basis of simple declaration even under section 132(4) addition cannot be made. Revenue authorities have failed to carry out this inquiry, and therefore, after relying upon the decision of CIT Vs. Maulikkumar K. Shah 2007 (7) TMI 267 - GUJARAT HIGH COURT and K.P.M. Nair Vs. ACIT 2016 (8) TMI 514 - GUJARAT HIGH COURT we do not have any hesitation that addition is not sustainable. Assessment u/s 153A - Addition of FDRs - HELD THAT - For the purpose of the assessment order under section 153A, addition could be made only on the basis of seized material. If the FDR is in the name of the assessee, but it was also shown as investment in the company and reflected in the balance, then it was brought to the notice of the Department. This fact ought to have been verified before making addition in the hands of the assessee. Therefore, we deem it appropriate to set aside this issue to the file of the AO for limited purpose that the ld.AO shall call for details from Kenson Motor P.Ltd. and find out whether the company has financed the purchases of this FDR and has accounted in its books of accounts. If it is found that the company has not financed it, then FDR stands in the name of two persons and to the extent share of the assessee is there, addition be made to that extent - according to the assessee, it is in the name of Shri Rajeshbhai, and therefore, the addition be restricted to 50% of ₹ 5,00,000/-. The ld.AO shall verify this fact, and re-adjudicate the issue after hearing the assessee. Undisclosed rental income - stand of the assessee is that since this is the assessment order framed under section 153A, therefore, no addition ought to be made without supporting of any seized material - HELD THAT - No merit in the contention of the ld.counsel for the assessee, because this search was conducted on 11.10.206, and this is a regular as well as search assessment year. In this year, the AO can explore other items of income required to be assessed in the regular assessment. Though, we accept alternative contention of the assessee, because, we have already assessed ₹ 10 lakhs on account of unexplained cash available with the assessee. The AO is directed to give telescopic benefit of this ₹ 30,000/- out of ₹ 10 lakhs assessed in this year. The reason for this direction is that the AO has assessed it on account of unexplained credit in the books. This ground of appeal is partly allowed. Penalty u/s 271(1)(c) - HELD THAT - Cash of ₹ 10 lakhs was found which has not been accounted in the books. He could not give any explanation even in the penalty proceedings. As far as the addition of ₹ 9,000/- is concerned, the assessee has shown rental income from Kenson Sales Corporation. The stand of the assessee has not been accepted by the AO. The assessee has given an explanation that he has rental income, but stand of the assessee was not accepted. This explanation was not found to be false by the AO. Therefore, on the addition of ₹ 9,000/- no penalty be imposed upon the assessee. However, the ld.AO to calculate penalty imposable upon the assessee only on addition of ₹ 10,00,000/-. The appeal of the assessee is partly allowed. Invocation of jurisdiction under section 153A - Non disclosure of agricultural income - HELD THAT - Search was carried out on 11.12.2006. Time limit to issue notice under section 143(2) on the original return of income in the Asstt.Year 2006-07 was not expired till search has taken place. Thus, the assessment in this year has to be termed as not attained finality. It has abated, and fresh assessment under section 153A has to be passed. No doubt the AO was not possessing any incriminating material for making addition. In such situation, he could determine the taxable income according to the regular books of accounts. He has not made any addition separately, which is associated with search. It is the assessee who has shown agriculture income and rental income for the first time in response to notice under section 153A. Therefore, these issues were required to be examined while re-assessing the income for this assessment year as per section 153A Agricultural income - assessee has disclosed agriculture income, but could not substantiate that fact - This issue deserves to be set aside to the file of the AO because the AO has not called for the land holding possessed by the assessee. It is to be ascertained whether the assessee is having any agriculture land; if yes, whether it is cultivatable or barren land, after calling from the land record, the AO should determine whether the assessee has any agriculture income or not. Rental income shown by the assessee AO has not discussed this issue in detail. A perusal of the CIT(A) s order would indicate that building from which rental income is being claimed, owned by seven persons. Upto and unless actual documents exhibiting ownership of the building, and how rental income is being recognized in the hands of the assessee is ascertained, it is not advisable to make addition under section 68. Therefore, we deem it appropriate to set aside both orders to the file of the AO for re-adjudication.
Issues Involved:
1. Legality of assessments under Section 153A. 2. Validity of additions made based on statements recorded under Section 132(4). 3. Confirmation of specific additions and penalties under various sections of the Income Tax Act. 4. Admissibility of additional evidence under Rule 46A. Detailed Analysis: 1. Legality of Assessments under Section 153A: The primary issue raised by the assessee was the legality of the assessments made under Section 153A of the Income Tax Act. The Tribunal referred to the decisions of various High Courts, including the Delhi High Court in the case of Kabul Chawla, which outlined the scope of Section 153A. It was established that: - Assessments and reassessments pending on the date of the search shall abate. - The AO has the power to assess and reassess the 'total income' of the six years preceding the year of search. - Additions should be based on evidence found during the search or other post-search material related to the seized evidence. - In the absence of incriminating material, completed assessments should not be interfered with. For the assessment year 2005-06, the Tribunal quashed the assessment order under Section 153A since no incriminating material was found during the search. However, for the assessment year 2001-02, the Tribunal upheld the AO's action under Section 153A because the assessee had admitted unaccounted income during the search. 2. Validity of Additions Based on Statements Recorded under Section 132(4): The Tribunal examined whether additions made solely based on statements recorded under Section 132(4) were valid. It was noted that such statements are admissible but not conclusive evidence. The Tribunal emphasized that without corroborative evidence, it is unsafe to rely solely on retracted confessions. In the case of the assessment year 2001-02, the Tribunal deleted the addition of ?80,69,186/- as the Revenue failed to provide corroborative evidence supporting the statement made under Section 132(4). 3. Confirmation of Specific Additions and Penalties: - Assessment Year 2005-06: The Tribunal quashed the assessment order and deleted the penalty under Section 271(1)(c) as no incriminating material was found. - Assessment Year 2001-02: The Tribunal upheld the addition based on the statement recorded under Section 132(4) but deleted the penalty as the addition was not sustainable. - Assessment Year 2007-08: The Tribunal upheld the addition of ?10 lakhs as unaccounted cash found during the search but set aside the addition of ?5 lakhs related to an FDR for verification. The penalty was confirmed only for the addition of ?10 lakhs. - Assessment Year 2006-07: The Tribunal set aside the additions related to agricultural income and rental income for re-adjudication and remitted the penalty order back to the AO for reconsideration post the quantum addition adjudication. 4. Admissibility of Additional Evidence under Rule 46A: The Tribunal rejected the assessee's plea for the admission of additional evidence under Rule 46A, as the assessee failed to demonstrate the applicability of conditions enumerated in the rule. Conclusion: The Tribunal provided a detailed analysis of each issue, quashing some assessment orders and penalties while upholding others based on the presence or absence of incriminating material. The Tribunal emphasized the necessity of corroborative evidence when relying on statements recorded under Section 132(4) and highlighted the procedural requirements for admitting additional evidence under Rule 46A. The appeals were partly allowed, with specific directions for re-adjudication and verification of certain additions.
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