2021 (1) TMI 737 - AT - Income Tax

Reopening of assessment u/s 147 - Addition on account of interest paid on Post Dated Cheques (PDCs) in cash and outside books of accounts - use of seized documents found during the course of search on BPTP and some of its group companies - HELD THAT - Each and every assessee is a separate and distinct assessee. It is a fact on record that no seized material belonging to the assessee was found during the course of search on BPTP Ltd. and some of its group companies. None of the vendors of land who sold land to assessee were called and examined by the AO. There is nothing adverse brought on record by the AO in form of any material or any statement that interest outside the books was paid in cash by the assessee. The reasons were recorded by the AO by relying on seized documents which belonged to some other assessee during the course of search on BPTP Ltd. and some of its companies. Considering the rules of precedence and consistency and in absence of any material document evidence or statement which could implicate the assessee in our view the impugned assessment could not have been reopened. In view of these specific facts the action taken by the AO of reopening of the assessment u/s 147 of assessee is not sustainable and the same is quashed as being void ab-initio as being based on seized documents of other assessee and based on presumptions assumptions and incorrect interpretation of law. Assessee s appeal for AY 2007-08 - This issue is settled by the co-ordinate bench in case of Westland Developers Pvt. Ltd. 2015 (11) TMI 1682 - ITAT DELHI wherein it was held by the Tribunal that in absence of any cogent definite material which belonged to the assessee or any evidence demonstrating the payment of interest by the assessee on PDCs reasons recorded for initiation of proceedings u/s 147 were not in consonance with law having been based on mere suppositions surmises and extrapolation of material seized. The bench completely discarded the argument of AO and Ld. CIT (A) of common management and the assessee belonging to the same group and held that it cannot be equated with existence of incriminating seized material belonging to the assessee. In this case also there is no seized document found which belongs to the assessee and it is so confirmed by the Ld. CIT (A) also in his order. No statement of any vendors of land is recorded by the AO. Statement of Shri Chottu Ram is referred to although the assessee has denied to have purchased any land from Shri Chottu Ram. The statement of Shri Chottu Ram was not even provided to the assessee. In our view the statement of Shri Chottu Ram cannot be made as the basis for taking adverse inference without the assessee even having been confronted with it -None of the vendors of land and the alleged recipients of interest paid by the assessee were examined by AO who would have confirmed of having received any such interest. It is the basic principle of law that unless there is a corroborative evidence no addition can be made in an assessment. Ground nos. 2 3 relating to addition confirmed by the Ld. CIT (A) in respect of interest paid on post-dated cheques outside the books is deleted. Disallowance u/s 40A(3) - cash payment made by the assessee for purchase of land - AR has submitted that the assessee has not claimed the amount paid for purchase of land as amount paid is neither debited to the Profit Loss a/c nor claimed as deduction in the Computation of Taxable income as the assessee has received reimbursement of amount from M/s Countrywide Promoters Pvt. Ltd. - HELD THAT - It is seen that the issue of disallowance u/s 40A (3) is decided by several co-ordinate benches in various cases of group companies of BPTP in favour of the respective assessees by taking the view that issue of disallowance of expenses does not arise as the amount paid for purchase of land is neither debited to the Profit loss a/c nor claimed as expenditure in the Computation of taxable income as the assesses have got reimbursements of the amounts paid for purchase of land from M/s Countrywide Promoters Pvt. Ltd. on assignment of development rights in land purchased by assesses in favour of M/s Countrywide Promoters Pvt. Ltd. This issue was first decided in the case of M/s West Land Developers Pvt. Ltd. 2015 (11) TMI 1682 - ITAT DELHI and later on in more than 30 other cases of BPTP group on identical facts. Therefore following the rules of precedence and consistency the disallowance made by the AO is hereby deleted. - Decided in favour of assessee.

Summary

Issues Involved:
1. Legality of assessment order under Section 143(3)/147 instead of Section 153C.
2. Validity of assumption of jurisdiction under Section 147.
3. Addition on account of interest paid on Post Dated Cheques (PDCs).
4. Disallowance of additional payments made for purchase of land.
5. Disallowance under Section 40A(3) for cash payments.

Detailed Analysis:

1. Legality of Assessment Order under Section 143(3)/147 Instead of Section 153C:
The assessee contended that the assessment order should have been made under Section 153C of the Income Tax Act, as no search was conducted on the assessee. The Tribunal noted that no seized documents belonged to the assessee, which was confirmed by the CIT (A). The Tribunal held that the assessment under Section 147 was invalid as it should have been under Section 153C if any seized documents belonged to the assessee.

2. Validity of Assumption of Jurisdiction under Section 147:
The Tribunal observed that the reasons recorded for reopening the assessment did not have any nexus with the assessee. The reasons were based on seized documents that did not belong to the assessee. The Tribunal referenced the case of Westland Developers Pvt. Ltd., where a similar issue was decided, stating that reasons based on mere suppositions and extrapolation of material seized from other entities are not valid. The Tribunal concluded that the reopening of the assessment under Section 147 was void ab initio.

3. Addition on Account of Interest Paid on Post Dated Cheques (PDCs):
The Tribunal noted that the AO made additions based on documents seized during the search of BPTP and its group companies, which did not belong to the assessee. The CIT (A) had also confirmed that no seized documents belonged to the assessee. The Tribunal held that the addition based on presumptions and without any corroborative evidence was not justified. The Tribunal referenced several judicial pronouncements, including CIT vs. Lubtec India Ltd., to support its decision to delete the addition.

4. Disallowance of Additional Payments Made for Purchase of Land:
The Tribunal observed that the additional payments were not claimed as deductions by the assessee. The CIT (A) had also noted that these payments were not illegal under the provisions of the Stamp Duty Act and were not hit by the Explanation to Section 37(1) of the Income Tax Act. The Tribunal concluded that the disallowance of additional payments was not justified and deleted the addition.

5. Disallowance under Section 40A(3) for Cash Payments:
The Tribunal noted that the assessee had not claimed the amount paid for the purchase of land as a deduction. The Tribunal referenced the case of Westland Developers Pvt. Ltd., where similar disallowances were deleted on the grounds that the payments were reimbursed and not claimed as deductions. The Tribunal followed the principle of consistency and deleted the disallowance under Section 40A(3).

Conclusion:
The Tribunal allowed both appeals of the assessee, quashing the reassessment proceedings under Section 147 and deleting the additions made on account of interest on PDCs, additional payments, and disallowance under Section 40A(3). The Tribunal emphasized the need for corroborative evidence and rejected assessments based on presumptions and documents not belonging to the assessee.