2020 (2) TMI 74 - AT - Income Tax

Assessment u/s 153A - Rejection of books of accounts - GP estimation - HELD THAT - The satisfaction recorded by AO initiating 153C is silent regarding the pending proceeding initiated u/s 153A by notice dtd. 29.12.2009 in the case of the assessee. The proceedings though purported to be initiated u/s 153C the assessments are completed u/s 153A rws 143(3) as evidenced by the respective orders of ld. AO and CIT(A). This leads to a legal situation where during the pendency of 153A proceedings notice u/s 153C is issued. To further confound the situation the proceedings are purported to be continued u/s 153C but the assessments are completed u/s 153A despite consciously dropping the notice u/s 153A. We find merit in the argument of ld. Counsel that assessments u/s 153A and 153C are independent and mutually exclusive, an assessment cannot be framed in continuation of both notices and similarly cannot be concluded u/s 153A if proceedings are undertaken u/s 153C. Regular trading results of the assessee s business were already subject matter of appeals, there was no search on his show room, and therefore, no incriminating material was found. By estimating the GP from regular business ld AO has reviewed settled position without any incriminating material in this behalf, which is not permissible in search assessments. In view thereof we delete the additions made in respect of estimation of GP from regular business. Apropos the income declared from unaccounted business it has not been disputed that assessee filed complete record of year wise and transaction wise accounts of material found in the locker. No adverse comments have been offered by ld. AO in this behalf. Regarding comparatively lesser GP from unaccounted business than regular business assessee offered proper reasons which have not been even considered by AO. The GP has been enhanced not based on any objective considerations but by summarily relying on estimated GP of regular business. In our considered view the incriminating material should be considered in totality and when assessee has submitted copious accounts for incriminating material it cannot be discarded summarily as done by ld. AO. Since there is no rebuttal in respects of accounts of unaccounted income furnished by the assessee, the profits declared deserve to be accepted in given facts and circumstances. Similarly it is not disputed that value of stock of jewellery found from locker was taken by ld. AO on market price whereas as per settled accounting principles same should have been valued at cost. Consequently valuation adopted by assessee is to be adopted. Thus the additions in question deserve to be deleted on merits also. - Decided against revenue.

Issues Involved:
1. Legality of proceedings under Section 153A and 153C.
2. Validity of trading additions and gross profit (GP) rate applied by the Assessing Officer (AO).
3. Valuation of unaccounted jewelry stock.
4. Legitimacy of the income declared from unaccounted business.
5. Rejection of books of accounts and estimation of GP from regular business.

Issue-wise Detailed Analysis:

1. Legality of Proceedings under Section 153A and 153C:
The search was conducted on a locker, leading to proceedings under Section 153A, which were later dropped and re-initiated under Section 153C without proper satisfaction being recorded. The Tribunal noted that the original notice under Section 153A was issued without a valid warrant or search on the assessee. Furthermore, no satisfaction was recorded while completing 153A assessments in the case of Modi group, and there was no assessment in the case of Shri Govind Dev. The Tribunal held that assessments under Sections 153A and 153C are independent and mutually exclusive. Consequently, the assessments framed were deemed untenable and bad in law, as supported by judicial precedents such as Jindal Stainless Ltd. and Shital Prasad Kharag Prasad.

2. Validity of Trading Additions and GP Rate Applied by AO:
The AO applied a GP rate from regular business to unaccounted business without considering the distinct business operations. The Tribunal noted that the AO did not find any defects in the accounts of unaccounted transactions prepared by the assessee. The GP rate from unaccounted business was lower due to faster turnover and lesser GP, which was justified by the assessee. The Tribunal held that the AO's approach was arbitrary and based on presumptions, thus the additions were not justified.

3. Valuation of Unaccounted Jewelry Stock:
The AO valued the unaccounted jewelry stock at market rate, whereas the assessee valued it at cost. The Tribunal agreed with the assessee, stating that the jewelry should be valued at cost as per settled accounting principles. Consequently, the valuation adopted by the assessee was upheld.

4. Legitimacy of the Income Declared from Unaccounted Business:
The assessee provided complete records of year-wise and transaction-wise accounts of unaccounted income, which were not disputed by the AO. The Tribunal noted that the AO did not offer any adverse comments on these accounts. The GP from unaccounted business was justified by the assessee, and the Tribunal held that the profits declared should be accepted, as the incriminating material should be considered in totality.

5. Rejection of Books of Accounts and Estimation of GP from Regular Business:
The AO rejected the books of accounts and estimated the GP from regular business without pointing out any serious defects. The Tribunal noted that the regular trading results were already subject to appeals, and no incriminating material was found during the search. The Tribunal held that the rejection of books and estimation of GP were not justified, as the AO did not provide any specific basis for the higher GP rate applied.

Conclusion:
The Tribunal allowed the appeals filed by the assessee and dismissed those filed by the revenue. The assessments under Sections 153A and 153C were held to be invalid, and the additions made by the AO were deleted on both legal and merit grounds. The Tribunal emphasized the need for proper jurisdiction and objective consideration of incriminating material in search assessments.

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