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2022 (6) TMI 831 - AT - Income TaxAssessment u/s 153C - undisclosed income of the present assessee - satisfaction recorded for the impugned assessment years is not in accordance with law and is no satisfaction at all - Whether the material belonging to the assessee company and found in the premises of the person searched are not incriminating in nature and do not represent any undisclosed income for the impugned assessment years and hence the satisfaction recorded to commence proceedings is bad in law? - HELD THAT - In the present case, the proceedings of these assessments were not pending and did not get abated by virtue of 2nd proviso to section 153A(1) of the Act, which provides that in assessment proceedings for any of these assessment years set out in section 153A(1) of the Act, which is pending as on the date of initiation of search action u/s. 132 of the Act, such assessment proceedings would abate and AO will make assessment after considering the original return of income as well as material found in the course of search. The assessment proceedings which have been completed as on the date of search u/s. 132 however will continue to remain valid. Thus, the former proceedings are referred to as abated assessment proceedings and latter proceedings are referred to as unabated assessment proceedings . Therefore the scope of making assessment on total income u/s. 153C in an unabated assessment proceedings is limited and can be only of assessing income that is not disclosed which is detected or which emanates from material found in the course of search of some other person and which relate to the assessee. In the present case, the impugned addition made by AO is based on incriminating material found during the course of search. The addition can stand since there is seized material in support of the addition made by the AO. The assessee in the return of income disclosed certain transactions as discussed in the assessment order which is reproduced in earlier part of this order and that can be the basis to make addition while framing assessment u/s. 143(3) r.w.s. 153C of the Act. There is seized material found in the course of search which forms the basis for assessing income in the hands of the assessee for these three AYs. As per the provisions of section 153C of the Act, incriminating material which was seized had to pertain to the assessment year under consideration. It is an undisputed fact that documents which are seized referred to in para 4 of this order do establish co-relation with the additions made in these assessment years. The requirement u/s. 153C of the Act was satisfied which is essential under the provisions of section 153C which is a jurisdictional fact as held in Sinhgad Technical Edn. Society 2017 (8) TMI 1298 - SUPREME COURT After taking note of the material as recorded in para 4 of this order, there was seized incriminating material so as to frame assessment for these three assessment years u/s. 153C of the Act. Since the assessment framed u/s. 153C of the Act is based on material found during the course of search which relate to or belong to the assessee and since we have held that there are seized material for addition made by the AO, we inclined to reject the arguments made by the ld. AR for the assessee that the condition precedent for initiating the proceedings u/s. 153C of the Act having not been satisfied in the present case. Accordingly, we hold that the addition made by the AO is based on seized material found in the course of search and therefore the framing of assessment u/s 153C of the Act is justified. We are inclined to hold that framing of assessment u/s. 143(3) r.w.s. 153C of the Act is valid. Undisclosed investment in residential house - In the present case as demonstrated earlier the material relied upon to arrive at the satisfaction to initiate proceedings u/s 153 C are not subject matter of addition and the material relied upon to make additions to income are not subject matter of satisfaction. In view of the above submissions every addition made in an assessment u/s 153C must be necessarily based on incriminating seized material pertaining to that assessment year as held the Hon'ble Supreme Court in the case of CIT Pune vs Sinhgad Technical Education Society (supra). In the present case, the addition made is not based on any incriminating seized material relied upon to initiate proceeding u/s 153C and, the seized material relied upon to arrive at a satisfaction to commence proceedings u/s 153C do not pertain to the assessment year on hand and accordingly the order of the CIT(A) is to be upheld. Further the AO has made a protective addition, which itself demonstrates that there is no satisfaction that the income belongs to the other person, who is to be assessed u/s. 153C. In the absence of this mandatory satisfaction no addition can be made in the assessment u/s. 153C. We have heard both the parties and perused the material on record. Since the issue relating to this addition was remitted in the case of H B Sudarshan 2022 (6) TMI 769 - ITAT BANGALORE where the addition is made substantively, accordingly this issue is also remitted to the Assessing Officer to examine the issue afresh in the light of incriminating material found during the course of search including the CD retrieved from the computer of the searched person. Ordered accordingly. Additional profit from contract - I n the present case as demonstrated earlier the material relied upon to arrive at the satisfaction to initiate proceedings u/s 153C are not subject matter of addition and the material relied upon to make additions to income are not subject matter of satisfaction. In view of the above, it was submitted that the CIT(A) upheld the submissions of the Assessee company that the AO is not correct in estimating the income without proper rejection of books u/s. 145(3) of the Act, which clearly falls out of the Judgement of the jurisdictional High Court in the case of Karnataka State Forest Corporation Limited v. CIT 1992 (10) TMI 65 - KARNATAKA HIGH COURT relied upon by the Assessee Company and accordingly, he deleted the addition on this count. After hearing both the parties, we are of the opinion that the issue is to be considered by the AO afresh. We direct the assessee to produce the books of account before the AO and the AO is directed to verify the same along with the incriminating material seized during course of search and decide the issue afresh in accordance with law. Whether no addition can be made as based on digital data belonging to the person searched in absence of corroborative evidence? - With regard to the evidentiary value of date recovered from computer in the form of digital data and other documents listed in earlier part of this order is concerned, section 132(4) of the Incometax Act, permits the authorised officer to seize books of accounts and other documents. As in the case on hand, it is an income tax proceeding before a quasi judicial authority. A Division Bench of the Madras High Court, in the case of Rangroopchand Chardia 2016 (5) TMI 879 - MADRAS HIGH COURT and in the case of M.Vivek 2020 (11) TMI 953 - MADRAS HIGH COURT relied upon by the ld. DR, while dealing with section 132 of the Income-tax of the Income-tax, similar to the case on hand, has held that loose sheets picked up during search under section 132 of the Income-tax Act, falls within the definition of document , mentioned in section 132(4) of the Income Tax and therefore, it had got evidentiary value. Therefore, the contention raised by the learned Counsel for the assessee that digital evidence seized during the search under section 132 of the Income-tax Act does not have any evidentiary value, is rejected. This issue is remitted to the AO in all assessment years for consideration along with the incriminating material found during the course of search and for fresh decision. Appeals by the assessee are partly allowed for statistical purposes.
Issues Involved:
1. Validity of assessments framed under section 153C of the Income-tax Act, 1961. 2. Deletion of protective additions on account of undisclosed investment. 3. Deletion of unexplained cash deposits. 4. Deletion of undisclosed investment in office construction. 5. Deletion of estimated profit additions. 6. Validity of digital evidence. Detailed Analysis: 1. Validity of Assessments Framed Under Section 153C: The first issue pertains to the cancellation of assessments framed under section 153C based on the lack of incriminating material. The Tribunal noted that the satisfaction recorded to initiate proceedings under section 153C must indicate that the documents found during the search are incriminating in nature and prima facie represent undisclosed income. The Tribunal referenced the Karnataka High Court judgment in the case of CIT vs IBC Knowledge Park (P) Ltd, which held that the absence of incriminating material invalidates the assumption of jurisdiction under section 153C. The Tribunal concluded that the satisfaction recorded by the Assessing Officer (AO) was not in accordance with the law, rendering the assessments void ab initio. 2. Deletion of Protective Additions on Account of Undisclosed Investment: The AO made protective additions for undisclosed investments in a residential house belonging to an individual, which were also assessed substantively in the hands of the individual. The Tribunal highlighted that the incriminating material was not found with the assessee company and that the AO himself was not convinced that the investment represented the undisclosed income of the assessee company. The Tribunal emphasized that no protective addition can be made under section 153C without proper satisfaction that the income belongs to the person being assessed. The issue was remitted to the AO for fresh examination in light of the incriminating material. 3. Deletion of Unexplained Cash Deposits: The AO added unexplained cash deposits as income under section 68. The Tribunal noted that the assessee maintained statutory books of account, which were audited, and provided evidence for the cash deposits. The Tribunal found that the AO ignored the evidence and made the addition based on suspicion. The Tribunal emphasized that additions under section 153C must be based on seized material. The issue was remitted to the AO to consider the cash flow/fund flow statement and decide afresh. 4. Deletion of Undisclosed Investment in Office Construction: The AO added undisclosed investments in the construction of an office belonging to a trust, which were also assessed substantively in the hands of an individual. The Tribunal noted that the assessee company was merely a contractor and had no connection with the trust's affairs. The Tribunal found that the AO had no basis for the addition and emphasized that additions under section 153C must be based on seized material. The issue was remitted to the AO for fresh consideration. 5. Deletion of Estimated Profit Additions: The AO estimated additional profits from contracts without rejecting the books of account under section 145(3). The Tribunal noted that the assessee maintained statutory books of account, which were audited, and the AO did not reject the books. The Tribunal emphasized that no estimation of income can be made without rejecting the books. The issue was remitted to the AO to verify the books of account and decide afresh. 6. Validity of Digital Evidence: The AO made additions based on digital data retrieved from a CD found during the search. The Tribunal noted that digital data alone cannot be the basis for additions without corroborative evidence. The Tribunal referenced the Supreme Court judgment in the case of V.C. Shukla, which held that entries in books of account alone are not sufficient evidence to charge any person with liability. The Tribunal concluded that digital evidence must be supported by corroborative evidence and remitted the issue to the AO for fresh consideration. Conclusion: The Tribunal allowed the appeals partly for statistical purposes, remitting various issues to the AO for fresh examination and decision in accordance with the law. The Tribunal emphasized the necessity of incriminating material and proper satisfaction for initiating proceedings under section 153C and highlighted the importance of corroborative evidence for additions based on digital data.
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