2022 (2) TMI 1188 - AT - Income Tax

Assessment u/s 153A/143 - Difference between assessments under section 143(3) and 144 - HELD THAT - Consequences of assessments under section 143(3) and 144 are distinct and different. Assessment under section 143(3) is made after perusal of return of income and seeking evidences in respect of the incomes and expenditure disclosed in such return of income. A best judgment assessment u/s 144 is made without the benefit of return of income and the AO can resort to a rejection of books of account and estimation of income. In a best judgement assessment, the interest is calculated under section 234A of the Act till the date of completion of the assessment whereas in assessment under section 143(3), the terminal date of calculating interest is the date of filing of return. Under section 246A of the Act, separate appeal is provided for the assessment made under section 144 of the Act. In the case of a best judgment assessment, as per the provision of section 142(3), there is no requirement of any opportunity of being heard to the assessee in respect of the material gathered by the AO whereas in an assessment under section 143(3) whatever evidence is being gathered has necessarily to be confronted. Thus, very different consequences flow from an assessment under section 144 of the Act. Mention of nature of the order as section 153A r.w.s. 143(3) was not a technical mistake or an error which can be cured by resorting to the provisions of section 292B of the Act. AO even though recording that no return had been filed and no notice under section 143(2) had been issued, continued to proceed as if he was making an assessment under section 143(3) - Hence, the order made under section 153A/ 143(3) is not legally tenable and ought to have been made under section 144 of the Act. There is a clear distinction between the two forms of orders i.e. section 143(3) and section 144 and therefore, in the present case, the orders ought to have been passed under section 144 of the Act. Hence the orders so passed by the AO u/s 143(3) for the A.Y 2012-13 and under section 153A read with section 143(3) for the A.Ys 2011-12 and 2009-10 suffer from an incurable jurisdictional defect and cannot be upheld. On this count alone the assessment orders in respect of A.Ys 2012-13, 2011-12 and 2009-10 do not survive and are liable to be quashed. Assessment orders for the AY s 2009-10, 2011-12 and 2012-13 are invalid and we are not required to go into the merits of the case. However, in respect of the AY 2010-11, the return of income was filed and the assessment was correctly framed u/s 153A read with section 143(3) of the Act. Seized diaries and the income arising therefrom do not belong to the assessee - assessee has stated that the income that has been assessed in the hands of the assessee does not belong to him - It is trite that income has necessarily to be assessed in the hands of the correct person i.e. person who has earned it. This is manifest from the section 4(1) of the Income-tax Act which states that the income tax is to be levied on the total income of every person who is liable to pay tax on the same - correct person who is liable to pay income-tax on the income has to be assessed and if for any reason a wrong person has been taxed, it does not preclude the AO from taxing the right person. This judgment is the guiding force for the principle that the Assessing Officer has to tax the right person and the right person alone who is liable to pay income tax in accordance with law and has no option to tax in accordance with his belief or notion or discretion. Whether the income belongs to the assessee or not, is a jurisdictional/ foundational issue which can be adjudicated upon at any stage of the proceedings based on the facts available on record. AO cannot assess any person simply because it is more convenient to do so or it is in the interest of revenue. Similarly, just because the assessee claims that income may be taxed in his hands which he retracts later, he can t be assessed in respect of the said income if the overwhelming facts establish that the income does not belong to him. The expenses in the profit-loss account are on account of sales expenses, commission on sales, purchase for waste sales from J Polymer, factory wages, office wages, interest, telephone charges, water charges transport outward etc. There is a statement of affairs drawn which shows unsecured loans and its utilization on the asset side - unsecured loans that have been taken have been used for building construction, land purchase and to fund the business activities as stated in the seized diary A/OPJ/03. The names of J Polysacks, J Polyfibre, Chinnaswami Godown, G Prakash and chit funds as current assets, loans and advances and investment also feature in the said statement of affairs. The CIT(Appeals) besides computing gross profit on undisclosed trading receipts has also computed undisclosed income of ₹ 4,10,58,508/- on account of cash receipts from debtors and other advances, chit funds and cash loans as per the seized diary in the A.Y 2012-13. Then facts are clearly indicatives of business activities of the companies and not the assessee. There is a sum of ₹ 15 lakhs as cash loan given by Om Prakash Jakhotia. This shows that Om Prakash Jakhotia had given a loan of ₹ 15 lakhs which also is indicative of the fact that all the entries contained in the seized diary A/OPJ/03 do not belong to him. Why would Om Prakash Jakhotia give loan to himself and record the same. This is also a reflection that the books do not pertain to Om Prakash Jakhotia but perhaps belong to the companies. Books for the earlier period were not found during the course of search. From the statement of affairs drawn by the assessee on the basis of seized diary A/OPJ/03, it clearly comes out that the money was used for the business of the companies and the land and other investments were made also for the companies. It is also a fact that the assessee in his individual capacity did not have any registration under VAT, PF, ESI which is required to do any business for running a company. He is only a director, promoter, shareholder or partner in these companies and these companies are having robust business of manufacturing of PPE woven sacks. We have already stated the legal principle propounded by the Hon ble Supreme Court in the case of CH. Atchaiah 1995 (12) TMI 1 - SUPREME COURT and also the provision of section 4(1) of the Income-tax Act which says that the person who has earned the income and is liable to incometax, can only be assessed. We are also bound by the settled law laid down by the Hon ble Delhi High Court in the case of Kabul Chawla 2015 (9) TMI 80 - DELHI HIGH COURT that the income can be accessed only in the case of incriminating documents belonging to the person. In this case from the facts as is apparent from the seized diary A/OPJ/03 and also from the orders of the authorities below i.e. AO and the Ld. CIT (Appeals), it clearly comes out that the diary does not pertain to the assessee and income does not belong to him in his individual capacity. Since it does not belong to him, it cannot be taxed in his hands.Therefore, the income confirmed by the CIT (Appeals) in the hands of the assessee based on the seized diary A/OPJ/03 in the AY2009-10 to AY 2012-13 cannot be upheld. Addition on account of cash found during the course of search - HELD THAT - Order of the Settlement Commission has been quashed by the Hon ble Delhi High Court. The assessee also retracted the statement. We have already held that the seized diary A/OPJ/03 belong to the companies and not the assessee in his individual capacity. There are numerous cash transactions that appear in the seized diary. There is no evidence that the cash belongs to the assessee in his individual capacity since he only derives passive income. The conclusion therefore, is inescapable, that the cash belongs to the companies and hence, cannot be assessed in the hands of the assessee. Additions of unexplained investment in immovable property and cash deposit in saving bank account made on the basis of AIR - HELD THAT - We find that these two additions were made by the Assessing Officer on the basis of AIR information which was not confronted to the assessee at the stage of assessment proceedings and also at the first appeal stage. Also, as per the Form 26AS enclosed as Annexure-I to the synopsis, the Form does not contain any such information. Hence, the additions deserve to be deleted. Unexplained investment of share capital - AO has added this amount based on the statement given by the assessee during the course of search u/s 132(4) - HELD THAT - The assessee has already retracted from the statement made during the course of search giving cogent reasons for the same vide his affidavit dated 29.10.2013. Besides, there is nothing to show that it is the assessee s money which has come in by way of the share capital in M/s Jakhotia Plastics Private Limited which is a separate legal entity and has robust business activities. The share capital was received by M/s Jakhotia Plastics Pvt. Ltd. from M/s Varad Vinayak Properties Pvt. Ltd through account payee cheques and the seized documents do not contain anything that suggest that any cash was given by the assessee in lieu of the share capital. We fail to understand how addition of the share capital and share premium can be made in the hands of the assessee especially when there is no evidence of any unexplained investment having been made by the assessee or any credit having been received by the assessee in his books of account. The cash credit has been received by M/s Jakhotia Plastics Pvt. Ltd. from a source which is completely distinct from the assessee i.e. M/s Varad Vinayak Properties Pvt. Ltd. and as there is nothing to show that it is the assessee s money which has found place in the company. Under these circumstances this addition cannot be sustained in the hands of the assessee and is therefore, deleted. Addition on account of kick-backs paid to Dalmia Cement - HELD THAT We have already held that the seized books of accounts or diaries do not belong to the assessee but to the companies in which assessee was a director or partner and the assessee was not doing any business in his individual capacity. The dealings with Dalmia Cement are business dealings and do not pertain to the assessee in his individual capacity. Hence, the addition ought to be deleted in the hands of the assessee.

Summary

Issues Involved:
1. Validity of assessment orders under section 143(3) vs. section 144.
2. Ownership and attribution of seized documents (diaries) and related income.
3. Addition of unexplained investments and cash deposits based on AIR details.
4. Addition of unexplained share capital and share premium.
5. Addition of kick-backs paid to Dalmia Cement.
6. Penalty proceedings and interest levied under sections 271AAA, 271F, 234A, and 234B.

Detailed Analysis:

1. Validity of Assessment Orders Under Section 143(3) vs. Section 144:
The Tribunal examined whether the assessment orders should have been made under section 144 instead of section 143(3) due to the non-filing of returns by the assessee for AYs 2009-10, 2011-12, and 2012-13. The Tribunal held that:
- The assessment orders under section 143(3) were invalid as no returns were filed, and assessments should have been made under section 144.
- The Tribunal quashed the assessment orders for AYs 2009-10, 2011-12, and 2012-13 due to this jurisdictional defect.

2. Ownership and Attribution of Seized Documents (Diaries) and Related Income:
The Tribunal considered whether the seized diaries A/OPJ/03 and A/OPJ/01 belonged to the assessee or his group companies. The Tribunal found:
- The diaries contained business transactions related to the group companies, not the individual assessee.
- The income recorded in the seized diaries should be attributed to the group companies, not the assessee.
- The Tribunal deleted the additions made based on these diaries for all relevant assessment years.

3. Addition of Unexplained Investments and Cash Deposits Based on AIR Details:
For AY 2012-13, the Tribunal addressed the additions of unexplained investment in immovable property (?56,43,300) and cash deposits in a savings bank account (?13,17,000) based on AIR details:
- The Tribunal found that these additions were made without confronting the assessee with the AIR details.
- The Form 26AS did not reflect these transactions.
- The Tribunal deleted these additions due to lack of evidence and non-confrontation.

4. Addition of Unexplained Share Capital and Share Premium:
For AY 2011-12, the Tribunal examined the addition of ?4.92 crores being share capital and share premium invested by Varad Vinayak Properties Pvt. Ltd. into Jakhotia Plastics Pvt. Ltd.:
- The Tribunal held that the share capital and share premium were received by Jakhotia Plastics Pvt. Ltd. and not the individual assessee.
- There was no evidence that the money belonged to the assessee.
- The Tribunal deleted the addition in the hands of the assessee.

5. Addition of Kick-Backs Paid to Dalmia Cement:
For AYs 2010-11 and 2011-12, the Tribunal addressed the addition of ?25,20,000 each year on account of kick-backs paid to Dalmia Cement:
- The Tribunal found that the seized documents did not belong to the individual assessee but to his group companies.
- The dealings with Dalmia Cement were business transactions of the companies.
- The Tribunal deleted the additions for both years.

6. Penalty Proceedings and Interest Levied Under Sections 271AAA, 271F, 234A, and 234B:
The Tribunal noted the penalty proceedings and interest levied but did not specifically address these in the detailed analysis, focusing instead on the primary issues of assessment validity and income attribution.

Conclusion:
The Tribunal quashed the assessment orders for AYs 2009-10, 2011-12, and 2012-13 due to jurisdictional defects and deleted the additions made based on seized diaries, unexplained investments, and kick-backs. The Tribunal emphasized the need to tax the correct person and found that the income in question belonged to the group companies, not the individual assessee.