2022 (10) TMI 655 - AT - Income Tax

Assessment u/s 153C - requirement of law for exercising jurisdiction u/s 153C - HELD THAT - Hon ble Jurisdictional Allahabad High Court in the case the CIT vs. Raj Kumar Arora 2014 (10) TMI 255 - ALLAHABAD HIGH COURT has unequivocally decided this issue in favour of the Revenue by holding that the AO would be empowered to assess and reassess the returns of assessee not only for the undisclosed income which was found during the search operation but also with regard to the material that was available at the time of the original assessment proceedings. Also see Sunshine Infra State Pvt. Ltd. 2022 (5) TMI 1297 - ITAT ALLAHABAD In the present case, the assessee being under the jurisdiction of Hon ble Allahabad High Court, the ratio of the decision in the case of Raj Kumar Arora (supra) holds the field as it is binding on all the authorities under the jurisdiction of Hon ble Allahabad High Court. We therefore respectfully following the judgement of the jurisdictional High Court rendered in the case of Rajkumar Arora (supra) hereby dismiss the grounds of the assessee. Approval granted by Addl.CIT u/s 153D of the Act was a mechanical approval without application of mind and therefore assessment order was bad in law and contrary to the settled position of law - From the records, it is evident that the entire case file was placed before the competent authority who after perusing the same and due application of mind had accorded the requisite approval and therefore in our view, the contentions of the assessee is merely based upon suspicion without being backed by any material evidence and hence we do not see any merit in the contention of the Ld AR. Thus this Ground No.2 raised by the assessee is dismissed. Valuation adopted in respect of the construction of a property at Noida UP. - HELD THAT - The direct evidence on cost of construction should be preferred unless found unreliable or unacceptable to the indirect evidence on the point coming through the road of estimated valuation. The Revenue has not brought any material on record suggesting that the assessee had in fact incurred any other expenditure more than what has been recorded in the books of accounts or the entries made in the accounts are false. As well settled now that even if the AO proceeds for estimation of fair market value of the property, he is duty bound to apply state PWD rate in view of the binding precedents. Therefore, we are unable to sustain the impugned addition firstly for the reason that the AO ought to have brought direct evidences of incurrence of expenditure towards construction of property to demonstrate that the assessee had in fact incurred expenditure more than what is recorded in its books of accounts and secondly that the Hon ble High jurisdictional High Court and the Coordinate Benches of this Tribunal have unequivocally ruled that the state PWD rates should be adopted for computing the fair market value of the property situated in different states. Therefore, respectfully following binding precedents, we hereby direct AO to adopt PWD rates as prevalent at that point in time for ascertaining the correct and true figure of investment made by the assessee. In case, if the AO finds that upon applying prevailing PWD rates, fair market value of the property is lesser than the investment disclosed by the assessee, he shall delete the addition. Rebate on account of self supervision charges - HELD THAT - Interest of justice that if a rebate of self supervision @10% is granted to the assessee. Our view of granting self supervision rebate is also supported by the decision of co-ordinate Bench of this Tribunal rendered in the case of Smt. Saroj Gupta 2006 (8) TMI 242 - ITAT DELHI-B wherein the Tribunal has allowed the self supervision rebate at the rate of 10%. We accordingly direct the AO to grant the rebate on account of self supervision charges as observed hereinabove at the rate of 10%. Thus this ground of assessee s appeal is partly allowed in the terms indicated hereinabove for statistical purpose only. Addition made u/s 68 and 69C qua the share application money and payment of commission - HELD THAT - Considering the peculiarity of the facts, we are of the view that in the present case, the additions have been made purely on the basis of statement recorded at the back of the assessee without providing an opportunity of cross examination of the maker of the statements. Moreover, the statements do not reveal the specific details of the transaction with the assessee and the share applicant. Merely a sweeping statement without supported by relevant evidences cannot form the basis of making the addition. It is well settled that the addition cannot be made purely on the basis of suspicion and the AO is required to bring material evidences in its support. In the instant case, the AO has not brought any adverse material suggesting that the assessee had devised a colorable device for the purpose of routing its own money. In the absence of such evidence and in the light of the binding decisions cited hereinabove, we are of the considered view that the impugned addition cannot be sustained in the facts of the present case. We accordingly hereby direct the AO to delete the addition - Also the addition made by the AO on account of alleged payment of commission thereon u/s 69C also cannot be sustained. Hence, the AO is hereby directed to delete the addition. Addition made by estimating the cost of construction on the basis of the report submitted by the DVO - HELD THAT -We direct the AO to adopt the state PWD rates for estimating the cost of construction and further grant a deduction of self supervision charges at the rate of 10%. Thus the grounds raised by the assessee are allowed in the terms indicated hereinbefore for statistical purposes. Unexplained construction in property - HELD THAT -So far the question of adopting the PWD rate is concerned, however in our considered view the AO ought to have taken into consideration the actual expenditure incurred by the assessee on the construction of the property till the date of inspection by the DVO and ought to have given the setoff of the same. We therefore do not see any reason to interfere with the finding of CIT(A). Thus the ground raised by the Revenue is dismissed. Difference in fair market value of the property as declared by the assessee and adopted by AO on the basis of DVO report - contention of the assessee that if the PWD rates self - supervision charges are allowed then there would not be any occasion to make addition - HELD THAT - The facts of the present case are identical to the facts of the case of Ecstasy Buildcon Pvt. Ltd. as admitted by both the parties. In the case of Ecstasy Buildcon Pvt. Ltd. (supra), we have examined the issue elaborately and decided the issue in favour of the assessee by directing the AO to adopt the State PWD rates for the purpose of arriving at fair market value of the property. For the same reasoning, in this case also we hereby direct the AO to adopt the State PWD rates and also grant deduction on account of self supervision at 10%. The AO is hereby directed to delete the impugned addition in view of the working given by the Assessee in the form of chart which is reproduced hereinabove. Thus the grounds of the assessee are allowed. Addition u/s 69A of the Act being unexplained cash found - as contention of the assessee that the cash found at the time of search was out of the sale proceeds of the various paintings which assessee s wife had acquired from her late father who had hobby to collect the valuable paintings. The late father in law of the assessee had sufficient source of income to make such purchases - submissions of the assessee about the cash generated out of the sale of the paintings have not been controverted by Revenue by placing any adverse evidence on record - it is also a fact that assessee has also not produced any evidence that was called for by the AO regarding details of purchases of paintings - we are of the view that the disallowance of claim of assessee regarding sale of paintings in the present facts of the case is excessive and arbitrary. We therefore in interest of justice restrict the addition to the extent of Rs.6,00,000/- i.e. 30% of total disallowance made by the AO and rest of the addition is hereby deleted. Thus the ground of assessee is partly allowed. Unexplained investments u/s 69 in the property at Indirapuram, Gaziabad - HELD THAT - Lower authorities have made addition purely on the basis of the notings in diary found in the possession of Shri B. B. Goel and the statement recorded in this regard. The Revenue did not provide opportunity of cross examination to the assessee in respect of any statement made by Shri B. B. Goel. The AO has also not brought any other material suggesting the actual fair market value of the property in question is higher than what is recorded in the sale deed. Undisputedly, transfer of a property would always be between two parties one being seller and other the purchaser. It cannot be assumed that one party disclosed correct figure of consideration and the other party concealed the true value of the property. There is no mention about action taken by Revenue in the case of seller who had sold the shops to the assessee. It was incumbent upon the AO to demonstrate the correct fair market value of the property when he was not accepting the value disclosed by the assessee. In the absence of such finding with supporting evidences, any addition made on the basis of presuming that the figures written by the third party in his diary is the fair market value of property, would not be justified and against the law laid down in the case of CBI vs. V. C. Shukla 1998 (3) TMI 675 - SUPREME COURT and followed in other catena of judgments. We therefore respectfully following the binding precedents on this issue relied by the Ld. AR hold that the addition has been made purely on the basis of surmises and we therefore direct for it deletion. Thus the ground raised by the assessee is allowed. Addition u/s 68 - unsecured loan being routed through dubious route by the assessee to bring her own unexplained money through the lenders - HELD THAT - AO without carrying out requisite enquiry proceeded purely on the basis of surmise and therefore, such approach of the assessing authority is not in accordance with the settled position of law. Admittedly in the present case no addition has been made in the case of the lender. Hence, it can be safely inferred that no addition has been made in the hand of the lender meaning thereby the source of such amount has been duly accepted in the hand of lender since no addition has been made by AO. Therefore, in our considered view source is explained. Now AO cannot blow hot and cold at the same time. There is no finding regarding the unsecured loan being routed through dubious route by the assessee to bring her own unexplained money through the lenders. In the absence of specific finding by the AO supported by relevant evidence that the assessee has adopted the route of the unsecured lenders for bringing her own money, no addition could be made. Furthermore, the Revenue has not rebutted the fact that the loan in question was repaid during the year of its receipt. In the case of ITO Vs. Habitat Infrastructure Ltd. 2019 (4) TMI 1104 - ITAT DELHI held that there was no need to interfere with the findings of CIT(A) who deleted the addition on the basis that loan which was obtained and repaid by the assessee subsequently. We therefore respectfully following the binding precedents cited by the Ld. AR noted hereinabove direct the AO to delete the addition. Thus the ground of the assessee is allowed. Addition u/s 69A of the Act with respect to unexplained investment in jewellery and bullion - HELD THAT - As in terms of CBDT instructions, 535.28 gms of jewellery, in the absence of any contrary material, is stood explained. Further, the contention that out of the total jewellery found at the premises of Shri Dinesh Yadav, jewellery weighing 160.358 gms belonged to Mrs. Shweta Yadav, who is stated to be the sister of Mr. Manish Yadav. The AO could not controvert the fact that at the time of search the jewellery in question was found in a separate pouch with the name of Mrs. Shweta Yadav. Therefore, looking to the fact that Shri Manish Yadav admitted the fact that the jewellery belonged to his sister, Mrs. Shweta Yadav and coupled with the fact that it is a normal practice in Indian household that ladies keep their jewellery jointly, the AO ought to have not attributed the aforesaid jewellery solely in the hands of the Assessee. We hold accordingly, and direct the AO to delete the addition to that extent. Out of the remaining jewellery, we are of the considered view that the AO should have considered the gift deed and other evidences furnished by the assessee explaining the ownership of the jewellery found in the possession of Shri Dinesh Yadav. Therefore taking a holistic view, jewellery to the extent of 150 gms be treated as not explained and rest of the jewellery stood explained. We therefore, direct the AO to restrict the addition in this respect to the extent 150 gms in the hand of the assessee. Thus this ground of the assessee is partly allowed. Addition u/s 68 - AO had made addition on the basis that there was no debit entry in the bank statement of the lender - HELD THAT - As looking into the material placed on record in support of the claim regarding loan of Rs. 20 lakh received from Shri Shantnoo Goyal, the amount is duly reflected. Therefore, the suspicion of AO is baseless. We, therefore, looking to the material placed on record are of considered view that the AO erroneously made addition and hence same is hereby deleted. Thus the ground of the assessee is allowed. Setoff of jewellery - HELD THAT - Action of AO is not justified for not giving set off of jewellery belonging to other persons and duly explained by the assessee. We, therefore, taking a holistic view restrict the addition to the extent of 300 gms jewellery in the hands of assessee. Rest of the addition is hereby deleted. Thus the ground of the assessee is partly allowed. Unexplained investment addition u/s 69B - HELD THAT - Revenue has not rebutted the claim of the assessee that the property in question was yet to be completed and the DVO took the value of completed property coupled with fact that no evidence is brought on record by the AO suggesting that any expenditure more than what was booked by the assessee in its books of accounts has been incurred. In the absence of such evidence, the cost adopted by the AO is merely an estimation and pure guess work. Therefore, following our decision in the case of Ecstasy Buildcon Pvt. Ltd. we hold that the action of AO for making addition partly on the basis of a report by DVO who has failed to take note of the judicial pronouncements, adopted CPWD rate for the purpose of estimation of cost of construction cannot be sustained. We, therefore, direct the AO to delete the impugned addition. The Ground of Assessee s appeal is allowed and corresponding ground and Revenue s appeal is dismissed.

Summary

Issues Involved:
1. Validity of assessment framed under Section 153C/153A of the Income Tax Act.
2. Approval granted under Section 153D of the Income Tax Act.
3. Addition under Section 69B of the Income Tax Act for unexplained investment.
4. Addition under Section 68 of the Income Tax Act for unexplained cash credit.
5. Addition under Section 69A of the Income Tax Act for unexplained money.
6. Valuation of property and adoption of CPWD rates instead of State PWD rates.
7. Treatment of corpus donations as unexplained cash credit.

Detailed Analysis:

1. Validity of Assessment under Section 153C/153A:
The Tribunal examined whether the initiation of proceedings under Section 153C was justified. It was argued that no incriminating material was found during the search to warrant such proceedings. The Tribunal referred to the jurisdictional High Court's decision in CIT vs. Raj Kumar Arora, which held that assessments could be made based on material available at the time of original assessment proceedings. The Tribunal dismissed the assessee's contention, affirming that the proceedings were valid.

2. Approval under Section 153D:
The Tribunal analyzed whether the approval granted under Section 153D was mechanical and lacked application of mind. The assessee argued that the approval was granted without proper scrutiny. However, the Tribunal found that the entire case file was placed before the competent authority, who granted approval after due consideration. The Tribunal dismissed the ground, holding that the approval was valid.

3. Addition under Section 69B for Unexplained Investment:
The Tribunal scrutinized the addition made for unexplained investment based on the valuation report of the District Valuation Officer (DVO). The assessee contended that the DVO adopted CPWD rates instead of State PWD rates and did not allow for self-supervision charges. The Tribunal directed the AO to adopt State PWD rates and allow a 10% rebate for self-supervision charges. The Tribunal partly allowed the assessee's appeal on this ground.

4. Addition under Section 68 for Unexplained Cash Credit:
The Tribunal examined the addition made for unexplained cash credits received as share application money. The assessee provided supporting documents to establish the identity, creditworthiness, and genuineness of the transactions. The Tribunal found that the AO did not provide the assessee an opportunity to cross-examine the director whose statement was relied upon. The Tribunal directed the AO to delete the addition, holding that the assessee had discharged its burden of proof.

5. Addition under Section 69A for Unexplained Money:
The Tribunal reviewed the addition made for unexplained cash found during the search. The assessee explained that the cash was generated from the sale of old paintings. The Tribunal found the disallowance excessive and arbitrary, restricting the addition to 30% of the total disallowance made by the AO.

6. Valuation of Property and Adoption of CPWD Rates:
The Tribunal addressed the issue of adopting CPWD rates instead of State PWD rates for property valuation. It was held that State PWD rates should be used, as they consider local conditions better. The Tribunal directed the AO to adopt State PWD rates and allow for self-supervision charges, thus partly allowing the assessee's appeal.

7. Treatment of Corpus Donations as Unexplained Cash Credit:
The Tribunal analyzed the addition made for corpus donations treated as unexplained cash credits. The CIT(A) had deleted the addition, noting that the donations were received through banking channels and were duly accounted for. The Tribunal upheld the CIT(A)'s decision, finding no reason to interfere with the order.

Conclusion:
The Tribunal's detailed analysis led to the dismissal of the Revenue's appeals and partial allowance of the assessee's appeals. The Tribunal emphasized adherence to judicial precedents, proper valuation methods, and the necessity of providing opportunities for cross-examination. The decisions were grounded in ensuring that the assessments were based on concrete evidence and not mere estimations or conjectures.