2019 (11) TMI 1243 - AT - Income Tax

Assessment u/s 153A - whether the assessment orders are barred by limitation - whether the CIT(A) erred in confirming the addition of 50% of agricultural income returned by the assessee as income from other sources ? - - HELD THAT - In the instant case, it is clear from the assessment order that no transfer of document is required since the Assessing Officer in the case of searched person and the assessee is same. The search was conducted on 31.10.2011 and hence the last date for completion of assessment was 21 months from 31.03.2012, being the end of the financial year in which the search was carried out. Therefore, the assessment orders ought to have been passed on or before 31.12.2013. However, in these cases, the assessment orders were passed only 31.03.2014. Hence, these assessment orders are prima facie barred by limitation. On merits we find that the assessee is the owner of more than 75 acres of land in Madikeri. In Madikeri, the assessee s land is cultivated with coffee, cardamom, pepper etc. The assessee is also having land in Kozhikode, where coconut trees are planted. Copies of the record rights, crop information, sale invoices etc. are placed on record to prove that the land in Kudagu was owned by the assessee as well as agricultural operations were carried out regularly. The cost of asset remains fixed and the inflation index only reckons the indexed cost for the same asset based on the index which is notified by the Central Government. The concept of reverse indexation is not prescribed in the Income-tax Act. This method is wholly unsuitable when the yield for a particular year for each type of crop cultivated and its unit price varies from season to season in a year based on many uncertain and unpredictable variables like weather, market demand and supply etc. Therefore, we are of the view that the CIT(A) was not justified in directing that the agricultural income for all assessment years has to be determined on the basis of reverse indexation of income estimated for the calendar year 2018. Moreover, the Assessing Officer to assume jurisdiction u/s 153C he has to be satisfied that the documents or material found during the course of search belong to a person other than the searched person. In this case, there is no mention in the assessment order as to what document or valuable were found in the premises of the searched person that belonged to the assessee. There is no material belonging to the assessee which were unearthed during the search. This is clear from the fact that additions were made to the income returned in the respective assessment orders u/s 153C of the I.T.Act, by disbelieving 50% of agricultural income returned by the assessee and treating it as income from other sources (which was done on estimate basis) and the addition u/s 2(22)(e) of the I.T.Act. It is now well settled position of law that proceedings u/s 153C of the I.T.Act against the person who is not searched cannot be initiated unless incriminating documents or valuables belonging to such person were detected during the search In the instant case, the assessments were completed u/s 153A r.w.s. 153C of the I.T.Act. Therefore, in the absence of any incriminating evidence regarding details or documents, showing introduction of unaccounted income in the guise of agricultural income, the addition of a portion of agricultural income as income from other sources cannot be justified. Such an assessment is clearly unsustainable as the assessing authority has wrongly assumed jurisdiction u/s 153C of the I.T.Act as it was held in the case of Sinhgad Technical Education Society v. CIT 2017 (8) TMI 1298 - SUPREME COURT . Additions made as income from other sources by disbelieving 50% of agricultural income returned by the assessee in the respective assessment years is uncalled for and we delete the same - Decided in favour of assessee

Summary

Issues Involved:
1. Whether the assessment orders are barred by limitation.
2. Whether the CIT(A) erred in confirming the addition of 50% of agricultural income returned by the assessee as "income from other sources."

Issue-wise Detailed Analysis:

1. Whether the assessment orders are barred by limitation:

The assessee contended that the assessment orders were time-barred. According to Section 153B of the I.T. Act, the period of limitation for making the assessment or reassessment of the connected person is twenty-one months from the end of the financial year in which the last of authorizations for search was executed or nine months from the end of the financial year in which the books of account or documents are handed over under Section 153C. Since the search was conducted on 31.10.2011, the last date for completing the assessment was 31.12.2013. However, the assessment orders were passed on 31.03.2014, making them prima facie barred by limitation. The Tribunal admitted this ground based on the judgment of the Hon'ble Apex Court in the case of National Thermal Power Company Ltd. vs. CIT.

2. Whether the CIT(A) erred in confirming the addition of 50% of agricultural income returned by the assessee as "income from other sources":

The assessee, owning more than 75 acres of agricultural land in Madikeri and Kozhikode, declared agricultural income for the assessment years 2006-2007 to 2012-2013. The Assessing Officer (A.O.) disbelieved 50% of this income and added it as "income from other sources" based on inspectors' reports indicating suppression of expenses and overstatement of income.

The CIT(A) directed the A.O. to estimate the agricultural income using reverse indexation based on a certificate from the Village Officer, which estimated the agricultural income for 2018 at ?35 lakh. The Tribunal found this method inappropriate, as reverse indexation is not prescribed in the Income-tax Act and is unsuitable for estimating agricultural income due to variable factors like weather and market conditions.

Furthermore, the Tribunal emphasized that for the A.O. to assume jurisdiction under Section 153C, there must be documents or materials found during the search belonging to a person other than the searched person. In this case, no such documents were mentioned, and the additions were made by disbelieving 50% of the agricultural income on an estimate basis. The Tribunal relied on the judgment of the Hon'ble Delhi High Court in Pepsico India Holdings Private Limited v. ACIT, which states that proceedings under Section 153C cannot be initiated without incriminating documents or valuables belonging to the person not searched.

The Tribunal concluded that the additions made by disbelieving 50% of the agricultural income were unsustainable, as the assessing authority wrongly assumed jurisdiction under Section 153C. The Tribunal deleted the additions, allowing the assessee's appeals.

Conclusion:

In conclusion, the Tribunal held that the assessment orders were time-barred and that the additions made by disbelieving 50% of the agricultural income were unjustified. The appeals filed by the assessee were allowed.