2024 (6) TMI 982 - AT - Income Tax

Validity of assessment u/s 153A - absence of any incriminating material seized during the course of search - No assessment pending which got abate - HELD THAT - In addition to the income that has already been assessed, the assessment u/s 153A of the Act will be made on the basis of incriminating material, which in the context of relevant provisions means (i) books of accounts, other documents, found in the course of search but not produced in the course of original assessment, and (ii) undisclosed income or property discovered in the course of search. The argument of the Counsel is that in this assessment year, notice to issue u/s 143(2) was already lapsed as on the date of search, no assessment could be made without basis of incriminating material found during the course of search. We find force in the argument of assessee in this AY 2013-14 AY 2014-15, the addition made by AO is not based on any seized material and the AO made additions in a routine manner which were disclosed to the department by way of regular return of income filed by the assessee and no incriminating material was found during the course of search and to come to conclusion that the expenses or allowances claimed by the assessee could be disregarded or income disclosed by the assessee could be considered as taxable. Further in the case of IBC Knowledge Park Pvt. Ltd. 2016 (5) TMI 372 - KARNATAKA HIGH COURT had held that unless material seized during the course of search which suggest undisclosed income and are incriminating in nature, jurisdiction u/s 153C of the Act cannot be assumed. Same view has been taken by Hon ble Supreme Court in the case of Abhisar Buildwell (P) Ltd. 2023 (4) TMI 1056 - SUPREME COURT - Decided in favour of assessee. Validity of assessments u/s 153A consequent to search action u/s 132 - AY 2015-16 - HELD THAT - The assessment in this case was to be completed u/s 153A of the Act and the AO was under a statutory obligation to consider entire material irrespective of the place from where it was found whether assessee s own place or some other place. There cannot be two assessments in case of searched party, one u/s 153A of the Act and another u/s 153C of the Act. Further in the present case, return of income filed by assessee that was processed u/s 143(1) of the Act and the time limit for issue of notice u/s 143(2) of the Act not expired which is available up to 30.9.2016 and the intimation is not akin to assessment and time limit for notice u/s 143(2) of the Act is not expired, even though return has been processed, it will be a case where return has not been attained finality Consequently, ld. AO would have authority/jurisdiction to assess the entire income similar to jurisdiction in regular assessment u/s 143(3) of the Act as held by All Cargo Logistics Ltd. 2012 (7) TMI 222 - ITAT MUMBAI(SB) . As such, the quashing of assessment by ld. CIT(A) is not possible. Hence, the assessment was pending as on the date of assessment since the search took place on 24.6.2016 return was filed for this assessment year u/s 139(1) of the Act on 29.9.2015. The same was processed u/s 143(1) of the Act on 5.5.2016 there was a time limit to issue notice u/s 143(2) of the Act up to 30.9.2016. Hence, on the date of search i.e. 24.6.2016 there is a time limit to issue notice u/s 143(2) so as to complete the assessment u/s 143(3) of the Act. Hence, this assessment cannot be said that assessment has not been pending on this date and the assessment is not abated. Being the assessment year 2015-16 falls under the above clause the assessment cannot be cancelled by applying the judgement in the case of Abhisara Buildwell Pvt. Ltd. 2023 (4) TMI 1056 - SUPREME COURT To that extent ld. CIT(A) not justified. Since there is a time limit to issue notice u/s 143(2) of the Act though return was processed it will be the case where the return has not attained finality. As such assessment is pending and it is not a concluded assessment, the ld. AO validly assumed jurisdiction u/s 153A of the Act consequent to search action u/s 132 of the Act so as to frame the assessment u/s 153A of the Act. Addition made towards unaccounted sales - Addition based on notings on the loose sheets - It is settled position of law that onus lies upon the Department to collect cogent evidence to corroborate the notings on the loose sheets. The additions cannot be made merely on the basis of notings on the loose sheet papers which are in the nature of dumb documents having no evidentiary value. The onus lies on the Department to collect the evidence to corroborate the notings on the loose sheets. In the present case, it is undisputed position that as a result of search and seizure action in the case of respondent- assessee and its group companies, no material whatsoever was seized and found indicating payment of on-money consideration at the time of purchase of the lands. We find that the conclusions reached by the Assessing Officer are merely based on presumptions and assumptions without bringing corroborative material on record. It is settled position of law that no addition in the assessment can be made merely based on assumptions, suspicion, guess work and conjuncture or on irrelevant inadmissible material. Thus a sworn statement cannot be relied upon for making any addition and must be corroborated by independent evidence for the purposes of making assessments. In view of the above discussion, we are of the opinion that addition cannot be made on the basis of statement recorded u/s 132(4) of the Act supported by the unsubstantiated loose slips. Accordingly, the addition is deleted though we are not agreed with the order of the ld. CIT(A) on deletion of addition. Taxation of Undisclosed Stock and Unaccounted Sales u/s 115BBE - AO treated entire total value of this jewellery as income from other sources and taxed at 60% by applying provisions of section 115BBE - Assessee has declared additional income towards excess stock found during the course of search action - HELD THAT - We note that assessee is in jewellery business. The assessee had admitted excess stock found in the business premises of the assessee as well as residence of the assessee as business income and offered the same for taxation by bringing the same to P L account of the assessee. The ld. AO accepted the returned income and taxed the whole excess stock of jewellery. The assessee has been explaining before the lower authorities that excess stock found during the course of search action had emanated from the stock of earlier years and it is nothing but the flow back of the business income earned by assessee from year to year. Unless the department is having any material to show that the assessee has earned the same from any other unknown sources of income, it is to be treated as business income only. In our opinion, when the assessee has explained that the source was from the business and except stock difference no other investment with any other asset was found and particularly, this unexplained excess stock is surrendered as business income has to be assessed as business income and not under the head unexplained investment under the head investment u/s 69B Assessee has declared additional income towards excess stock found during the course of search action both at the business premises of the assessee as well as partner of the assessee (Mr. Ravish) and there was no material to suggest that the assessee has not earned this income other than from the jewellery business carried on by the assessee from assessment year to assessment year and it has to be treated as income earned from the assessee only in the assessment year under consideration or earlier years from business and the same has been surrendered as income of the assessee to be treated as accordingly, especially, the ld. AO has not done anything to dispute the claim of assessee that the source was not from the business. The lower authority cannot apply the provisions of section 69B r.w.s. 115BBE of the Act and the income declared by the assessee to be considered as income from normal business of the assessee. Revenue authorities were not able to submit any evidence to show that such income is not connected with the business income of the assessee or accumulated from non-recognising sources. Hence, all the incomes earned by the assessee are only from the business income of the assessee, there do not arise any question as to application of provisions of section 69 or 69A or 69B or 69C of the Act. Hence, taxing such income at special rate u/s 115BBE of the Act is improper. It is settled principle of law that when there is no separate source of income identified during the course of search action or survey or during the course of assessment proceedings or appellate proceedings, any income arising to the assessee shall be treated to be out of the normal business of the assessee only. For this purpose, we place reliance on the judgement of Deepak Setia 2023 (9) TMI 942 - ITAT AMRITSAR Hence, the addition sustained by CIT(A) u/s 69B r.w.s. 115BBE has to be treated as income from business.

Summary

Issues Involved:
1. Deletion of additions based on statements recorded during search.
2. Taxation of undisclosed stock and investments under Section 69B and Section 115BBE.
3. Applicability of Section 115BBE at different rates before and after the amendment.
4. Validity of assessments under Section 153A based on incriminating material.

Detailed Analysis:

Issue 1: Deletion of Additions Based on Statements Recorded During Search
Background:
The revenue challenged the deletion of additions for the assessment years 2013-14 to 2015-16, arguing that the additions were based on statements recorded under Section 132(4) of the Income Tax Act during a search.

Findings:
- The Tribunal noted that the statements recorded under Section 132(4) must be corroborated by other evidence.
- The CIT(A) had deleted the additions on the grounds that no incriminating material was found during the search to support the additions.
- The Tribunal upheld the CIT(A)'s decision, emphasizing that additions based solely on statements without corroborative evidence are not sustainable.

Conclusion:
Additions based solely on statements recorded during search without any corroborative evidence cannot be sustained.

Issue 2: Taxation of Undisclosed Stock and Investments Under Section 69B and Section 115BBE
Background:
The revenue contended that the undisclosed stock and investments should be taxed under Section 69B and Section 115BBE at a higher rate, while the assessee argued that these should be treated as business income.

Findings:
- The CIT(A) held that the unaccounted stock found at the business premises and with goldsmiths should be treated as business income under Section 28, not under Section 69B.
- The Tribunal agreed with the CIT(A), noting that the stock was part of the business activity and should be taxed as business income.
- However, the Tribunal disagreed with the CIT(A) on the treatment of stock found at the residence of the partner. It held that this stock should also be treated as business income, not as unexplained investment under Section 69B.

Conclusion:
Undisclosed stock found during search should be treated as business income under Section 28, not as unexplained investment under Section 69B.

Issue 3: Applicability of Section 115BBE at Different Rates Before and After the Amendment
Background:
The assessee argued that the amendments to Section 115BBE, which increased the tax rate to 60%, should not apply retrospectively to the income quantified before the amendment date.

Findings:
- The Tribunal noted that the amendments to Section 115BBE came into effect from 05.12.2016.
- It held that the tax rate applicable should be the one in force at the time the income was quantified, i.e., 30% before the amendment.

Conclusion:
The tax rate applicable under Section 115BBE should be the one in force at the time the income was quantified, not the amended rate.

Issue 4: Validity of Assessments Under Section 153A Based on Incriminating Material
Background:
The revenue argued that the assessments for the years 2013-14 to 2015-16 should be upheld as they were based on incriminating material found during the search.

Findings:
- The Tribunal observed that for completed/unabated assessments, additions can only be made if incriminating material is found during the search.
- It noted that in the present case, no such incriminating material was found for the years in question.
- The Tribunal upheld the CIT(A)'s decision to quash the assessments for these years.

Conclusion:
For completed/unabated assessments, additions under Section 153A can only be made if incriminating material is found during the search.

Final Judgments:
- The appeals of the revenue for the assessment years 2013-14 to 2015-16 were dismissed.
- The appeal of the revenue for the assessment year 2015-16 was also dismissed, and the addition of Rs. 4 Crores was deleted.
- The cross appeals for the assessment year 2017-18 were decided in favor of the assessee, treating the undisclosed stock as business income and applying the lower tax rate of 30% under Section 115BBE as it stood before the amendment.