2018 (10) TMI 2051 - AT - Income Tax

Assessment made u/s. 153A - incriminating material was found and seized from the assessee or not? - Addition u/s 69 - HELD THAT - We find it is case where incriminating documents do exists involving the unaccounted payment of loan to Mr. Chetan Mehta. It is fact that the said documents/material were not discovered or seized from the premises of the assessee. The very facts of the said documents constitute incriminating evidence and both assessee and Shri Mehta are searched u/s. 132 of the Act the additional grounds raised by the assessee needs to be dismissed. There was search and seizure action on all these assessees on the same day and therefore the incriminating information gathered in the said premises of Shri Mehta is rightly used by the Assessing Officer in making assessment. Absence of any incriminating evidence seized from the premises of the assessee does not alter the incriminating nature of the said documents. Accordingly the question of document not belonging to the transaction of the assessee does not arise. Considering the admitted position of the nature of incrimination we are of the opinion that the assessment made based on the documents relied by the AO constitutes a validity of assessment. Addition u/s. 69 - CIT (A) passed the impugned order in the month of December 2013 regarding assessment order being dated 31.12.2009 which was much earlier to the date of order of 1st Class Magistrate. On going through the said relevant facts we are of the opinion that this particular order of 1st Class Magistrate though relevant did not exist at the relevant point of time. It is the firm argument of the Ld. Counsel for the assessee that the said order goes to the root of the matter relating to the addition made u/s. 69 of the Act. On perusal of the same we are of the opinion that this order is not only relevant for adjudication of the issue on hand but also has effect considering the set principle of natural justice and the matter should be remanded to the file of Assessing Officer for considering the said order. The Assessing Officer is directed to grant reasonable opportunity of being heard to the assessee in accordance with set principle of natural justice and pass a speaking order after considering the same. Adjusting all the inventories qua VAT in particular - HELD THAT - Requirement of adjustment to all the inventories including all the purchases account we are of the opinion that this issue should be remanded to the file of Assessing Officer for verification of figures and providing necessary adjustment of purchases account also on purview of the inventories. While allowing the ground raised by the assessee in principle for the purpose of verification of the figure and the facts the matter stands remanded to the file of AO for want of speaking order on this issue. AO shall grant reasonable opportunity of being heard to the assessee in accordance with set principles of natural justice. Accordingly ground raised by assessee is allowed for statistical purposes.

Summary

1. ISSUES PRESENTED and CONSIDERED

The Tribunal considered several core issues in the appeals:

• Validity of assessment and additions made under Section 153A of the Income Tax Act, 1961, particularly where no incriminating material was found and seized from the assessee.
• Correctness of additions under Section 69 of the Act concerning alleged loans and interest income, specifically regarding loans to Mr. Chetan Mehta and Mr. Rajpal Panghal.
• Admission of additional evidence, particularly the order from the First Class Magistrate acquitting the assessee in a related criminal case.
• Valuation of closing stock and treatment of VAT in the assessment year 2009-10.

2. ISSUE-WISE DETAILED ANALYSIS

A. Validity of assessment/additions - incriminating material

• Relevant legal framework and precedents: The Tribunal examined the provisions of Section 153A of the Income Tax Act, which allows for assessment or reassessment in cases where a search has been conducted.
• Court's interpretation and reasoning: The Tribunal noted that the incriminating documents were not found at the premises of the assessee but were discovered during a search of Mr. Chetan Mehta. Despite this, the documents were deemed incriminating and relevant to the assessee's transactions.
• Application of law to facts: The Tribunal concluded that the absence of incriminating evidence from the assessee's premises did not invalidate the assessment, as the documents seized from Mr. Mehta were pertinent.
• Conclusion: The Tribunal dismissed the additional ground raised by the assessee challenging the validity of the assessment based on the lack of incriminating material found directly with the assessee.

B. Merits of addition under Section 69 of the Act

• Relevant legal framework and precedents: Section 69 deals with unexplained investments, and the Tribunal considered whether the alleged loans and interest income fell under this provision.
• Key evidence and findings: The Tribunal considered additional evidence, specifically the order from the First Class Magistrate, which acquitted the assessee of charges related to illegal money lending.
• Application of law to facts: The Tribunal found that the Magistrate's order, which was not available at the time of the original assessment, was relevant and affected the merits of the additions made under Section 69.
• Conclusion: The Tribunal remanded the issue back to the Assessing Officer for reconsideration in light of the new evidence, directing that a fresh adjudication be conducted.

C. Valuation of closing stock and treatment of VAT (A.Y. 2009-10)

• Relevant legal framework and precedents: The Tribunal examined Section 145A of the Income Tax Act, which mandates adjustments for taxes, duties, cess, or fees in the valuation of inventory.
• Court's interpretation and reasoning: The Tribunal noted that the CIT(A) partially allowed adjustments for VAT but did not provide a comprehensive rationale for not adjusting all inventories.
• Application of law to facts: The Tribunal found that all inventories should be adjusted for VAT, either inclusively or exclusively, as per established legal principles.
• Conclusion: The Tribunal remanded the issue to the Assessing Officer for verification and adjustment of all inventories concerning VAT, emphasizing the need for a speaking order.

3. SIGNIFICANT HOLDINGS

• Core principles established: The Tribunal underscored the importance of considering all relevant evidence, including subsequent judicial findings, in reassessment proceedings under Section 153A.
• Final determinations on each issue: The Tribunal partially allowed the appeals for statistical purposes, remanding several issues back to the Assessing Officer for further consideration in light of new evidence and legal principles.

In summary, the Tribunal's judgment highlighted the necessity of a thorough examination of evidence and adherence to legal standards in tax assessments and reassessments, particularly in cases involving search and seizure operations. The Tribunal's decision to remand issues for further consideration underscores its commitment to ensuring fair and just tax proceedings.