2020 (8) TMI 713 - AT - Income Tax

Validity of assessment u/s 153C - assumption of jurisdiction by Ld.AO under section 153C along with additions made in respective years - HELD THAT - This issue has been decided by this Tribunal in case of Sh.P. Vittalnath Ready 2020 (3) TMI 572 - ITAT BANGALORE upholding the validity of proceedings under section 153C and held upholding the validity of proceedings under section 153C. In both these cases are identical arising out of the same search conducted on the group, we do not find any reason to deviate from the above findings. We also note that Ld.CIT(A) held that materials found belonging to assessee was found during course of search, from searched premises, and therefore, notice issued under section 153C of the Act is valid. - Decided against assessee. Addition of estimation of business Income - HELD THAT - For A.Y 2013-14 We note that this issue has been dealt with by this Tribunal while deciding this issue observed that for assessment year 2013-14, time period for issuing notice under section 143 (2) expired before the date of search and that the assessment had not abated. As AR submitted that issue is identical. It is also been alleged by Ld. ar that no incriminating material was found during search relating to assessment year 2013-14, we therefore direct Ld.AO to verify the same and consider the claim of assessee. In the event it is found that time period for issuance of notice under section 143 (2) stood expired, and that no incriminating materials were found, no addition could be made under section 153C. Estimation of income - Tribunal partly allowed by limiting the estimation to 8% of gross receipts - HELD THAT - As decided in own case 2020 (3) TMI 572 - ITAT BANGALORE on careful consideration of facts and taking a reasonable approach, it would be met end of justice, if the profit rate were applied to 8% being equal to presumptive rate under section 44AD of gross receipts as against estimation @ 8.5% by Ld. CIT (A). The AG is, therefore, directed to recalculate the addition of business income by adopting 8% of gross receipts. This ground of appeal is therefore, partly allowed. Addition being 1/3rd of cash seized at the time of search - HELD THAT - As decided in 2020 (3) TMI 572 - ITAT BANGALORE assessee has been showing substantial income over the years and ate of business requires holding cash in hand for making weekly payments to pourakarmikas, diesel etc. Considering these facts, it can be assumed that cash was available out of known sources, which can be considered as explainable out of cash withdrawals made prior a week of search date. Therefore, we are of the view the AO was not justified in making this addition, hence, the addition is directed to be deleted. Addition being 1/3rd of gold seized at the time of search - HELD THAT - As decided in 2020 (3) TMI 572 - ITAT BANGALORE no addition can be made in the hands of the assessee by treating 1/3rd of seized jewellery in his hand as jewellery was belonging to entire family members. Therefore, if at all if any addition to be made it is to be equally divided among family members. Further, the assessee has only claimed jewellery of 261 grams as belonging to him, which has been reflected in balance sheet as on 31.03.2011 hence, no addition could be made in the hands of the assessee. Further, considering the CBDT Circular which provides jewellery holding by female member and male members and children in particular quantity as not be served meaning thereby as explained, we are of the considered opinion that no addition can be sustained on this account. Accordingly, 1/3rd addition made in the case of the assessee on account of jewellery is deleted .

Summary

Issues Involved:
1. Validity of assessment under Section 153C.
2. Estimation of business income.
3. Addition of cash seized.
4. Addition of gold seized.

Issue-wise Detailed Analysis:

1. Validity of assessment under Section 153C:

The assessee challenged the validity of the assessment orders passed under Section 153C for the assessment years 2013-14 and 2014-15, arguing that no incriminating material was found belonging to the assessee and no satisfaction note was recorded. The Tribunal referenced a similar case involving a related assessee, where it was upheld that the proceedings under Section 153C were valid. The Tribunal noted that the Assessing Officer (AO) of the searched person had recorded satisfaction that the seized cash and jewellery belonged to the assessee, justifying the initiation of proceedings under Section 153C. Consequently, the Tribunal dismissed the grounds challenging the validity of the assessment for these years.

2. Estimation of business income:

For the assessment year 2013-14, the Tribunal observed that the time period for issuing a notice under Section 143(2) had expired before the date of the search, meaning no proceedings were pending, and no incriminating material was found. Therefore, no addition under Section 153C could be made, and the estimation of business income was deleted.

For the assessment years 2014-15 and 2015-16, the Tribunal found that the assessee could not produce books of accounts and supporting vouchers for expenses. The AO had rightly rejected the book results under Section 145 and estimated the business income at 8.5% of gross receipts. However, the Tribunal reduced this estimation to 8%, aligning it with the presumptive rate under Section 44AD for non-maintenance of books of accounts.

3. Addition of cash seized:

For the assessment year 2015-16, the AO added ?4,93,000, being 1/3rd of the cash seized during the search. The Tribunal noted that, in a similar case, it was held that cash withdrawals made prior to the search could explain the cash found. The assessee had withdrawn ?9,00,000 before the search, and the nature of the business required holding cash for weekly payments and other expenses. The Tribunal directed the AO to verify the facts and consider the claim in light of these observations, allowing the ground for statistical purposes.

4. Addition of gold seized:

For the assessment year 2015-16, the AO added ?16,42,900, being 1/3rd of the gold seized during the search. The Tribunal observed that the jewellery belonged to 19 family members and was kept together at one place. The assessee claimed ownership of 261 grams of jewellery, which was reflected in the balance sheet. The Tribunal held that no addition could be made in the hands of the assessee as the jewellery belonged to the entire family, and any addition should be equally divided among family members. The Tribunal directed the AO to verify the facts and consider the claim accordingly, allowing the ground for statistical purposes.

Conclusion:

The appeals for the assessment years 2013-14, 2014-15, and 2015-16 were partly allowed for statistical purposes, with directions for the AO to verify specific claims and consider the Tribunal's observations in similar cases. The Tribunal upheld the validity of the proceedings under Section 153C and provided detailed guidance on the estimation of business income and the treatment of seized cash and gold.