2022 (7) TMI 1095 - HC - Income Tax

Assessment u/s 153A - unexplained investment - ITAT confirming the order passed by CIT(A) deleting the additions - Whether ITAT has erred in holding that balance/trial sheet found during search being a public document is not an incriminating material? - HELD THAT - As in the present case, the Assessing Officer in the satisfaction note has recorded that the documents found during the search pertained to assessee and therefore it is a fit case for initiation of proceedings under Section 153C of the Act. However, the Assessing Officer failed to record as to how the documents found during search reflected any undisclosed income of the assessee. Assessing Officer, without even demonstrating/or drawing any nexus of the seized documents with the undisclosed income of the assessee, merely on the ground that the seized documents belong to the assessee initiated proceedings under Section 153C of the Act, which is against the settled position of law in several decisions of this Court. In the present case, both the CIT (A) as well as ITAT have given concurrent findings of fact that no incriminating materials had been seized during search. Consequently, the contention of learned counsel for the Appellant that incriminating documents or materials had been found and seized at the time of search is contrary to fact. CIT(A) had directed that the transactions need to be scrutinised in the case of the seller of the shares, namely, Triveni Infrastructure Development Company Co. Limited (TIDCO). Also, the same shares had been sold by assessee in the subsequent Assessment Year 2011-2012 at a lesser price as against the addition made by the Assessing Officer which is accepted by the Assessing Officer. Thus no incriminating documents or materials had been found and seized at the time of search. - No substantial question of law.

Summary

Issues Involved:
1. Delay in filing the appeal.
2. Legitimacy of the additions made by the Assessing Officer (AO) based on unexplained investment.
3. Validity of the ITAT's decision regarding the nature of the balance/trial sheet found during the search.
4. Applicability of the legal precedent set by the Kabul Chawla case.
5. Satisfaction note and its adequacy for initiating proceedings under Section 153C of the Income Tax Act.
6. Concurrent findings of CIT(A) and ITAT on the absence of incriminating materials.
7. Directions for scrutiny of transactions involving the seller of the shares.
8. Consistency in the sale price of shares in subsequent assessment years.

Detailed Analysis:

1. Delay in Filing the Appeal:
The court condoned the delay in filing the present appeal based on the averments in the application, thereby disposing of the application for condonation of delay.

2. Legitimacy of Additions by AO:
The appellant contended that the ITAT erred in confirming the CIT(A)'s order, which deleted the additions of Rs.7,17,24,500/- made by the AO on account of unexplained investment. The appellant argued that the principle of preponderance of probability was not adhered to, as no prudent person would sell shares at a 90% loss within five days without receiving balance consideration outside the books of accounts.

3. Nature of Balance/Trial Sheet:
The appellant also argued that the ITAT erred in holding that the balance/trial sheet found during the search was not incriminating material. The appellant emphasized that the balance sheet found and seized from the office of the assessee was linked to the share transactions and that the trial balance of a private company is not a public document.

4. Applicability of Kabul Chawla Case:
The court referred to the precedent set by the Kabul Chawla case, which held that no addition can be made in the assessment under Sections 153A and 153C of the Income Tax Act if no incriminating material is found during the search. This position was reiterated in the PCIT vs. Meeta Gutgutia case. Despite the pending challenge to the Kabul Chawla judgment in the Supreme Court, there was no stay, and thus, the court found no reason not to follow it.

5. Satisfaction Note for Section 153C Proceedings:
The court noted that the AO's satisfaction note recorded that the documents found during the search pertained to the assessee, making it a fit case for Section 153C proceedings. However, the AO failed to demonstrate how the documents reflected any undisclosed income of the assessee, which is against the settled law. The court cited several relevant cases, including CIT vs. RRJ Securities Ltd., PCIT vs. Dreamcity Buildwell Pvt. Ltd., and CIT vs. Radhey Shyam Bansal, emphasizing that mere possession of documents without relevance to undisclosed income does not justify reassessment under Section 153C.

6. Concurrent Findings of CIT(A) and ITAT:
Both the CIT(A) and ITAT found that no incriminating materials were seized during the search. The court upheld these concurrent findings, noting that the appellant's contention of incriminating documents being found was contrary to the facts.

7. Scrutiny of Seller's Transactions:
The CIT(A) had directed that the transactions involving the seller of the shares, Triveni Infrastructure Development Company Co. Limited (TIDCO), needed scrutiny. This direction was part of the CIT(A)'s order, which the ITAT upheld.

8. Consistency in Sale Price of Shares:
The court observed that the same shares were sold by the assessee in the subsequent Assessment Year 2011-2012 at a lesser price, which the AO accepted. This consistency in the sale price further undermined the AO's addition for the earlier assessment year.

Conclusion:
The court concluded that the question of law raised in the present appeal was settled by the earlier Division Bench in Kabul Chawla, and no incriminating documents or materials were found during the search. The ITAT's decision was also consistent with its ruling in a similar case (ITA No. 6817/Del./2013), which was upheld by the court in ITA 193/2022. Consequently, the court dismissed the appeal, finding no substantial question of law for consideration.