2023 (11) TMI 822 - AT - Income Tax

Validity of assessment u/s 153A - addition on account of incriminating material and other income to compute total income - addition of notional income from house property - HELD THAT - It is stated by DR before us that those immovable properties are disclosed in the balance sheet of the assessee and the assessee before the lower authorities never disclosed such balance sheet and therefore, unearthing balance sheet of the assessee, during the course of search itself is the incriminating evidence. Thus, there is reference of material found during the course of search, which suggests that the income of the assessee is required to be adjusted upwardly. It is the case of the revenue that assessee did file return of income for earlier years as well as for this year, prior to search and these properties or the balance sheet were not disclosed by the assessee for earlier years. The assessee does not deny these facts that balance sheet was found during the course of search and it was earlier not disclosed to the LD AO prior to search. As in the present case there is an incriminating material in the form of balance sheet where certain properties are stated l to be owned by assessee with respect to the addition made by the AO of notional income from house property u/s 22 of The Income Tax Act, the addition deserves to be upheld holding that assumption of jurisdiction u/s 153A is valid. Accordingly, ground number 1 of the appeal of the assessee is dismissed. Income from House property - Notional income u/s 22 - standard rent or rateable value should be taken to arrive at the annual let out value of the property - AO has considered 5% of the cost of acquisition of the property by which the property can be expected to be let out - HELD THAT - There is no whisper from the side of the assessee that whether 5% rate of return, which is expected to be annual value for the property maintenance also, is excessive or unreasonable. CIT-A has given the decision of Radha Devi Dalamia 1980 (3) TMI 62 - ALLAHABAD HIGH COURT wherein the 7% of the investment was considered to be the fair and just return of income on such investment. Also relied on the decision of 1996 (4) TMI 145 - ITAT AHMEDABAD-C wherein 8% return on such cost was also held to be the annual value of a property for taxation under the head income from house property. Therefore, we do not find any infirmity in the order of the learned lower authorities in assuming 5% of the cost of the investment as the annual value of the property which can be taxed under section 23 (1) of the act under the head income from house property. Deduction of Municipal taxes, there is no requirement for reducing the income of the assessee where the learned assessing officer has estimated the percentage of the cost of the equity as rate of return on the investment. In fact, the deduction of municipal taxes is inbuilt in the taxability of 5% estimated by AO. Granting deduction of 30 % we find that such deduction is available u/s 24 (a) of the Act. This deduction is unqualified and assessee is eligible for the same. No reasons are shown to us why assessee is same. We direct the LD AO to grant deduction of 30% of annual value to the assessee in terms of provision of section 24 (a) of the Act. Vacancy allowance, the facts are clear that those properties are not let out during the whole of the year and therefore there is no question of granting any vacancy allowance to the assessee. This is the mandate of the decision of honorable Punjab and Haryana High Court 2016 (12) TMI 1298 - PUNJAB AND HARYANA HIGH COURT . The SLP filed by the assessee against that decision has also been dismissed 2017 (4) TMI 671 - SC ORDER In view of that precedent, we do not find any merit in the claim of the assessee for allowability of vacancy allowance. Change of jurisdiction - claim of the assessee that the original jurisdiction is with The Income Tax Officer Ward 10 (3) 4) Mumbai and no order was passed u/s 127 to transfer the case to the Deputy Commissioner of income tax, Central Circle-5 (2) Mumbai - The fact as stated by the learned CIT-A clearly shows that principal Commissioner of income tax-15 Mumbai passed an order u/s 127 of the act on 14/12/2016 and the case of the assessee was centralized with the Deputy Commissioner of income tax, Central Circle-5 (2), Mumbai. Therefore it is not the case that there was no order passed by the learned principal Commissioner of income tax. By the order under section 127, the jurisdiction over appellant was transferred from Mumbai to another assessing officer in Mumbai. As per the provisions of section 127 (3) of the act, there is no requirement of giving any opportunity of being heard before the transfer of jurisdiction within the same city. Further, it is merely an administrative order and there is no prejudice caused to the assessee if the assessee is assessed in the same city. We find that the several judicial precedents cited by the learned authorized representative does not have any bearing on the issue before us. None of the cases cited shows that the transfer is within the same city, locality or place, which has been quashed. Provisions of section 127 (3) of the act clearly provides that when there is a transfer of case in the same city, locality or place, it does not require an opportunity of hearing to the assessee. Invalid assessment as the order is passed without issue of notice u/s 143 (2) - It is not the case of the assessee that no notice under section 143 (2) has been issued. Perusal of all these decisions shows that the notice is required to be issued under section 143 (2) of the act prior to making the assessment. In this particular assessment, the learned assessing officer has issued notice under section 143 (2) of the act which has been served on the assessee and this fact has not been denied. On change of jurisdiction by a statutory order, there is no provision of law that search new incumbent should also issue a new notice u/s 143(2) of the Act and that too within the permitted time. In view of this ground of the appeal of the assessee is dismissed. Addition u/s 68 - exemption from LTCG u/s 10 (38) denied - HELD THAT - Honourable Supreme Court in case of Abhisar Buildwell private limited 2023 (4) TMI 1056 - SUPREME COURT has held that in case any incriminating material is found/unearthed, even, in case of unabated/completed assessments, the Assessing Officer would assume the jurisdiction to assess or reassess the 'total income' taking into consideration the incriminating material unearthed during the search and the other material available with the Assessing Officer including the income declared in the returns. Therefore, in the present case before us, there can be an addition on the basis of the incriminating material which has been made by the learned assessing officer on account of income from house property and further addition on account of the income u/s 68 as well as u/s 10 (38) of the act. Even otherwise, when it is not denied by the assessee that the balance sheet was not disclosed to the revenue from which the assets were found, income of which is chargeable to tax under the head income from house property, even the addition of the capital gain claimed as exempt under section 10 (38) could also have been added by the learned assessing officer as it is other income. Denial of exemption under section 10 (38) - Onus to prove - Our reason for referring it is that what should be onus on the assessee. Firstly assessee in her family as stated to have received Rs 37 crores of exempt capital gain in a non-descript listed company operated by the accommodation entry provider, who has confessed that he has provided accommodations entries to the beneficiaries, including assessee, Confirmed by SEBI in adjudication order for same time in which assessee has sold these shares. In our view, a wanderer who does not know anything about the shares, did not attend any meetings of the companies, even do not know the nature of the business of the company, company is not found at the place where notices issued u/s 133 (6), invest Rs 1 Cr in 2012 and earns Rs. 10 crores in 2015- 16 her family earns whopping Rs 37 Crores is really a fantastic story. This needs to be rejected at threshold itself not only because preponderance of probability is against the assessee but also the facts found form Vipul Bhatt documentary evidences i.e. various annexure proves that story is fake. In present times, whopping gain earned by a wanderer who does not have any knowledge about the company earns Rs 10 Crores in whole family Rs 37 Crores is more surprising than winning in a horse race, Especially when the accommodation entry provider also says that, it is an arranged gain in the hands of family members of the assessee. An interesting aspect emerges of the contract notes submitted by the assessee for the sale of shares, it is apparent that moment assessee orders for the sale of shares, at the same time, those shares offloaded and sold. Thus, the order time and trade time are almost same or with a difference of split seconds. This is unusual when it happens in one-company shares, on the same date and in multiple trades on a single day where the trading is thin. SEBI order is relevant in case of 89 entities passed in this case for such synchronized trading. In view of this, even if we ignore the original statement given by the accommodation entry provider and his retraction later on, those evidences still remain which needs to be examined, now, independently to ascertain whether the amount of loan taken by the assessee and the amount of long-term capital gain earned by the assessee is genuine or non genuine. We set-aside ground number 2 and 4 of the appeal back to the file of the learned assessing officer with a direction to the assessee to show the genuineness of the trade and unsecured loan with respect to the documents found as stated in the statement of various parties, exit entry providers details, Demat agencies and the cash trail found. It is also the duty of the assessee to produce before the AO of her chartered accountant (who statement is not retracted), Ms. Rukhsana who is stated to have been involved in transferring the cash for the long-term capital gain and conversion of loan entries, for further examination.

Summary

Issues Involved:
1. Addition under the head of income from House Property.
2. Addition on account of Bogus Long-Term Capital Gain.
3. Addition under Section 68 of the Act for unsecured loans.
4. Validity of assessment under Section 153A.
5. Change of jurisdiction.
6. Non-issuance of notice under Section 143(2).
7. Levy of interest under Sections 234A, 234B, and 234C.
8. Violation of principles of natural justice.

Summary:

1. Addition under the head of income from House Property:
The assessee challenged the addition of notional income from house property, arguing that no incriminating material was found during the search. The Tribunal upheld the addition, stating that the existence of properties not disclosed in the balance sheet constituted incriminating evidence. The Tribunal directed the AO to grant a 30% deduction under Section 24(a) of the Act but denied the vacancy allowance.

2. Addition on account of Bogus Long-Term Capital Gain:
The assessee contested the denial of exemption under Section 10(38) for long-term capital gains on the sale of shares, arguing that the transactions were genuine and supported by documentary evidence. The Tribunal found that the transactions were part of a scheme orchestrated by an accommodation entry provider, Mr. Vipul Bhatt, and involved price rigging of shares. The Tribunal set aside the addition for further examination by the AO, directing the assessee to produce relevant witnesses and evidence.

3. Addition under Section 68 of the Act for unsecured loans:
The assessee argued that the loan received was genuine and supported by documentation. The AO and CIT(A) found the loan to be a bogus accommodation entry provided by Mr. Vipul Bhatt. The Tribunal set aside the addition for further examination, directing the AO to investigate the genuineness of the transaction and the involvement of the entry provider.

4. Validity of assessment under Section 153A:
The assessee claimed that the assessments were invalid as no incriminating material was found during the search. The Tribunal upheld the assessments, stating that the balance sheet found during the search, which disclosed properties not previously reported, constituted incriminating material.

5. Change of jurisdiction:
The assessee challenged the change of jurisdiction, arguing that no order under Section 127 was passed. The Tribunal dismissed this ground, stating that an order under Section 127 was passed, and there was no requirement for an opportunity of hearing for transfer within the same city.

6. Non-issuance of notice under Section 143(2):
The assessee argued that the assessment was invalid due to the non-issuance of a notice under Section 143(2) by the new incumbent AO. The Tribunal dismissed this ground, stating that a notice under Section 143(2) was issued and served, and there was no requirement for a new notice upon change of jurisdiction.

7. Levy of interest under Sections 234A, 234B, and 234C:
The Tribunal held that the levy of interest under Sections 234A, 234B, and 234C was consequential and dismissed the grounds challenging the interest.

8. Violation of principles of natural justice:
The assessee claimed a violation of natural justice, arguing that adequate opportunity was not provided, and cross-examination of witnesses was not facilitated. The Tribunal directed the AO to ensure that all principles of natural justice are adhered to in the further examination of the case.

Conclusion:
The appeals were partly allowed for statistical purposes, with directions for further examination by the AO on specific issues. The Tribunal upheld the validity of the assessments under Section 153A and dismissed grounds related to the change of jurisdiction, non-issuance of notice under Section 143(2), and levy of interest.