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2021 (2) TMI 949 - AT - Income TaxValidity of proceeding u/s. 153C - assessee has submitted that the AO has invoked the provisions of Section 153C but he has made only protective assessment for the AYs 2005-06 to 2008-09 ( part period) and therefore the action of the Assessing Officer is not sustainable in law to tax in the hands of the assessee based on the material found and seized during the search and seizure action - HELD THAT - Documents found and seized during the search and seizure action belongs to Meja Filing Station including ledger accounts of assessee in the books of Hotel Ajay International as well as certain vouchers in the name of Shri Ajay Kumar and Vijay Kumar, who were running the filing station as per the authorization at the relevant point of time. The documents found and seized pertains to the Financial Year 2007 and there is no ambiguity in the details as found recorded in the seized material that the assessee was doing the business of running filing station being retail dealership of sale of petrol and high speed diesel. Since there was no return of income filed by the assessee up to the AY 2008-09 till 07.12.2007 therefore, the seized material constitute incriminating material disclosing undisclosed income of the assessee. The seized material leads to the satisfaction that it has a bearing on the determining of the total income of the assessee at least for the assessment years for which the assessee did not file any return of income. Accordingly, do not find any substance or merit in this contention of the assessee and Grounds No. 1 to 5 of the assessee s appeal are dismissed. Estimation of income by applying NP @ 1% of gross sales being excessive - HELD THAT - Except the contention of excessiveness, the ld. AR of the assessee has not brought any material to show that the actual income of the assessee for these years is very less than 1%. Since the assessee has not produced any books of account as well as other supporting documents therefore, the N.P. applied by the ld. CIT(A) at 1% is very reasonable and proper and does not required any interference. Accordingly, appeals of the assessee dismissed. Assessment on substantive basis by AO by applying N.P. at 2% which was restricted by the ld. CIT(A) to 1% - AO rejected the books of account of the assessee due to non production of the relevant details - HELD THAT - AO was justified however it is pertinent to note that for the AY 2008-09 (from 07.12.2007 to 31.03.2008) to AY 2010-11 the assessee firm filed return of income u/s. 139(1) of the Act disclosing the income from the business of retails outlet of selling petrol and high speed diesel and therefore, the material found and seized during the search and seizure action pertaining to the F.Y. 2007 shall have no bearing on determination of the total income of the assessee when the assessee has already declared the income from such business. AO has passed an identical order by applying the N.P. @ 2% after rejecting the books of account but the seized material which was found during search and seizure action reveals that the assessee is engaged in the business and once the assessee has already declared the income from said business in the return of income filed u/s.139(1) then the said seized material which reveals the details of the transaction of the FY 2007 up to 07.12.2007 would not be considered as incriminating material to have any effect on determination of the total income of the assessee for these years. Therefore, the addition made by the Assessing Officer in the proceeding u/s. 153C for the Assessment year 2008-09 from 07.12.2007 to 31.03.2008 to AY 2010-11 are not based on any material revealing undisclosed income. Accordingly, the additions made by the Assessing Officer for these years is liable to be deleted.
Issues Involved:
1. Validity of assessment proceedings initiated under Section 153C without recording a valid satisfaction note. 2. Incriminating material found during the search and its impact on reassessment proceedings. 3. Substantive vs. protective assessment and its implications. 4. Existence of the assessee firm prior to 07.12.2007. 5. Estimation of net profit rate and rejection of books of account. 6. Deduction of interest on capital and remuneration to working partners. 7. Liability for interest levied under Section 234A and 234B. 8. Adherence to principles of natural justice. Issue-wise Detailed Analysis: 1. Validity of Assessment Proceedings under Section 153C: The assessee argued that the assessment proceedings initiated under Section 153C were invalid due to the absence of a valid satisfaction note. The Tribunal found that the Assessing Officer made a protective assessment for AYs 2005-06 to 2008-09, which was not sustainable in law. However, it was determined that the assessee firm existed since 1999, as evidenced by the LOI, power of attorney, and bank mandate documents. Thus, the contention that the assessee firm was not in existence before 07.12.2007 was rejected. 2. Incriminating Material and Reassessment Proceedings: The Tribunal noted that documents seized during the search and seizure action belonged to Meja Filing Station and included ledger accounts and payment vouchers. These documents, which were not disputed by the assessee, revealed undisclosed income and justified the initiation of proceedings under Section 153C. The Tribunal concluded that the seized material constituted tangible incriminating evidence. 3. Substantive vs. Protective Assessment: The Assessing Officer initially made a protective assessment for AYs 2005-06 to part period of 2008-09 and a substantive assessment for the remaining period. The CIT(A) converted the protective assessment to a substantive one, applying a net profit rate of 1%. The Tribunal upheld this decision, noting that the partnership firm existed and was operational during the relevant period. 4. Existence of the Assessee Firm: The Tribunal found that the assessee firm was in existence since 1999, based on documentary evidence such as the LOI and power of attorney. The reconstitution of the partnership deed on 07.12.2007 did not affect the firm's existence. The argument that the firm was not in existence prior to this date was dismissed. 5. Estimation of Net Profit Rate and Rejection of Books of Account: The Tribunal upheld the CIT(A)'s decision to estimate the income by applying a net profit rate of 1%, considering it reasonable and justified. The assessee failed to produce books of account and supporting documents, justifying the rejection of the books of account and the estimation of income. 6. Deduction of Interest on Capital and Remuneration to Working Partners: The Tribunal noted that the income was estimated by applying a net profit rate on total sales, and therefore, the question of allowing further deductions did not arise. This ground was dismissed as it was not raised before the CIT(A). 7. Liability for Interest under Sections 234A and 234B: The Tribunal did not find any specific discussion or ruling on the liability for interest under Sections 234A and 234B in the judgment. Therefore, this issue appears to have been implicitly dismissed or not addressed in detail. 8. Principles of Natural Justice: The Tribunal found no violation of the principles of natural justice in the proceedings. The orders of the authorities below were upheld where applicable, and the appeals were adjudicated based on the merits of the case and the evidence presented. Conclusion: The appeals for AYs 2005-06 to part period of 2008-09 (ITA Nos. 48 to 51/Alld/2019) were dismissed, upholding the assessments made by the authorities. The appeals for AYs 2008-09 (from 07.12.2007 to 31.03.2008) to 2010-11 (ITA Nos. 52 to 54/Alld/2019) were allowed, deleting the additions made by the Assessing Officer. The appeal for AY 2011-12 (ITA No. 55/Alld/2019) was dismissed, upholding the assessment made under Section 153B(1)(b).
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