2022 (4) TMI 676 - AT - Income Tax

Assessment u/s 153C - Proof of incriminating material for the issuance of notice u/s 153C - whether seized documents were in the nature of accommodation entries only for routing the undisclosed income? - HELD THAT - On a thorough and careful reading of the assessment order, we are unable to locate any observation of the Assessing Officer to demonstrate that the disputed additions were made with reference to any seized/incriminating materials found as a result of search and seizure operation. In fact, in course of hearing of these appeals before us, learned Departmental Representative fairly accepted the aforesaid factual position. Now, it is fairly well settled that where on the date of search and seizure operation assessment for the concerned assessment years have not abated, additions, if any, have to be made strictly with reference to seized/incriminating material found as a result of search and seizure. In this context, we rely upon the decision of the Hon ble Jurisdictional High Court in case of CIT vs. Kabul Chawla 2015 (9) TMI 80 - DELHI HIGH COURT and SINHGAD TECHNICAL EDUCATION SOCIETY 2017 (8) TMI 1298 - SUPREME COURT - Decided in favour of assessee.

Issues Involved:
1. Incriminating Material for Issuance of Notice u/s 153C
2. Nature of Seized Balance Sheet as Incriminating Material
3. Contextual Relevance of Incriminating Material
4. Definition of Incriminating Documents
5. Prima Facie Belief for Issuance of Notice u/s 153C
6. Applicability of Supreme Court Decision in M/s Sinhgad Technical Education Society
7. Validity of the CIT(A) Order

Detailed Analysis:

1. Incriminating Material for Issuance of Notice u/s 153C:
The Revenue argued that the learned CIT(A) erred in holding that there was no incriminating material for issuing notice u/s 153C, without appreciating the facts and circumstances brought out in the satisfaction note by the AO. The AO indicated that the names of entities, including the assessee, appearing on seized documents were accommodation entries for routing undisclosed income of Tirupati Sunworld Group companies, thus constituting "incriminating material."

2. Nature of Seized Balance Sheet as Incriminating Material:
The Revenue contended that the CIT(A) erred in holding that the seized balance sheet did not constitute "incriminating material" on the grounds that it was part of regular books. The Revenue argued that the entities of the Tirupati Sunworld Group were engaged in routing unaccounted funds through various entities, including the assessee, and that merely recording entries in the regular balance sheet could not render such documents non-incriminating.

3. Contextual Relevance of Incriminating Material:
The Revenue further argued that the CIT(A) erred in holding that the seized balance sheet did not constitute "incriminating material" without considering the totality of facts and circumstances and the context of the person in whose hands such entries represent unexplained income.

4. Definition of Incriminating Documents:
The Revenue asserted that the CIT(A) erred in holding that the seized material did not constitute "incriminating material" on the grounds that entries mentioned in the seized documents are reflected in seized books of accounts. The Revenue emphasized that incriminating documents include entries recorded in books of accounts that are fabricated, manipulated, or camouflaged, affecting the determination of the total income of the assessee.

5. Prima Facie Belief for Issuance of Notice u/s 153C:
The Revenue argued that the CIT(A) erred in holding that there was no incriminating material for issuing notice u/s 153C without appreciating that the test for "incriminating material" is based on a prima facie belief with some material having a live nexus, not absolute evidence established after detailed investigation.

6. Applicability of Supreme Court Decision in M/s Sinhgad Technical Education Society:
The Revenue contended that the CIT(A) erred in applying the decision of the Hon'ble Supreme Court in the case of M/s Sinhgad Technical Education Society, which was distinguishable on the facts of the present case.

7. Validity of the CIT(A) Order:
The Revenue argued that the order of the CIT(A) is erroneous in law and on facts and should be set aside, restoring the order of the AO.

Judgment Summary:

Incriminating Material Analysis:
The Tribunal observed that the CIT(A) conducted a detailed analysis of the seized documents and found that none pertained to the assessment years 2009-10, 2010-11, and 2011-12. The CIT(A) concluded that the seized documents were part of regular books of accounts and did not constitute incriminating material. The Tribunal upheld this finding, noting that the additions made by the AO were not based on any seized or incriminating materials found during the search and seizure operation.

Legal Precedents:
The Tribunal referenced the decisions of the Hon'ble Supreme Court in PCIT vs. Sinhgad Technical Education Society and the Hon'ble Jurisdictional High Court in CIT vs. Kabul Chawla, which established that additions must be made strictly with reference to seized/incriminating material found as a result of search and seizure.

Final Decision:
The Tribunal upheld the decision of the CIT(A) and dismissed the appeals of the Revenue. The Tribunal found no distinguishing facts in the impugned assessment years and followed the decision of the Coordinate Bench in the assessment year 2009-10, which was rendered in identical facts and circumstances.

Conclusion:
The appeals were dismissed, and the order pronounced in the open court on 12th April 2022 confirmed the CIT(A)'s findings that the issuance of notice u/s 153C was invalid due to the absence of incriminating material.

← Previous Next →