2024 (10) TMI 73 - AT - Income Tax

Assessment u/s 153A - Whether nothing incriminating was found from the premises of the assessee? - HELD THAT - Documents and statements and while applying the law laid down in the case of Abhisar Buildwell 2023 (4) TMI 1056 - SUPREME COURT and regarding the preceding year, the impugned order Ld. CIT(Appeal) also deserves to be set aside, when there is no incriminating material said to have been recovered or found at the time of search and seizure, involving the assessee. Assessment on the basis of sales made by the assessee to the two parties - While making assessment, no doubt was expressed regarding movement of goods concerning said sales. Even there is no dispute concerning corresponding purchases said to have been made by the assessee. Stock details were accepted by the AO - In view of all this, it is beyond comprehension as to how the AO invoked the provisions of section 68 of the Act. Calculation of a different Profit Margin - When provisions of section 68 of the Act could not be invoked the calculation of the profit margin at the rate of 8%, by Ld. CIT(Appeal) deserves to be set aside. Even otherwise, in the case of the assessee itself, referred to above, as regards findings about profit margin relating to sales made to the three parties mentioned therein, Co-ordinate Bench of the Appellate Tribunal expressed surprise over applying rate of profit margin different from the profit margin applied to the rest of the sales, and consequently held the impugned order to be erroneous. Similarly, here, the impugned order passed by CIT(A) applying rate of profit margin different from the profit margin applied to the rest of the sales, deserves to be set aside.

Summary

Issues Involved:
1. Validity of notice under Section 153A of the Income Tax Act.
2. Jurisdiction of the Assessing Officer.
3. Addition of income based on undisclosed sources.
4. Issuance of show cause notice for penalty proceedings under Section 271(1)(c).
5. Calculation of profit margin on sales to specific parties.
6. Application of Section 68 of the Income Tax Act.
7. Comparison with preceding assessment year judgments.

Issue-wise Detailed Analysis:

1. Validity of Notice under Section 153A:
The assessee objected to the validity of the notice issued under Section 153A following a search and seizure operation conducted on 20.04.2017. The initial notice was issued on 03.07.2018, and despite objections, a fresh notice was issued on 05.09.2019. The assessee contended that the return already filed should be treated as the return in response to the notice under Section 153A.

2. Jurisdiction of the Assessing Officer:
The assessee challenged the jurisdiction of the Assessing Officer, requesting that the matter be referred to higher income tax authorities under Section 124(2). This request was declined, with the jurisdiction being justified by a centralization order passed under Section 127 by the PCIT (Central), Rajasthan on 17.07.2018.

3. Addition of Income Based on Undisclosed Sources:
The Assessing Officer added Rs. 15,85,66,266/- to the assessee's income based on undisclosed sources, including a commission of Rs. 15,69,963/-. The addition was based on documents and statements obtained during the search operation, including confessions from dummy property partners and directors of dummy concerns managed by Shri Nirmal Kumar Sarda, CA.

4. Issuance of Show Cause Notice for Penalty Proceedings under Section 271(1)(c):
The Assessing Officer issued a show cause notice to the assessee for initiating penalty proceedings under Section 271(1)(c) for concealment of income.

5. Calculation of Profit Margin on Sales to Specific Parties:
The CIT(Appeal) restricted the addition to Rs. 73,17,436/- by calculating the profit margin on sales worth Rs. 9,14,67,947/- to M/s. Bhoomika Enterprises and M/s. Shree Chamunda Enterprises at an 8% rate. The CIT(Appeal) observed that the AO did not provide evidence of cash exchange for these transactions, but the non-existence of business activity at the registered premises could not be ignored.

6. Application of Section 68 of the Income Tax Act:
The Assessing Officer invoked Section 68, which deals with unexplained cash credits. However, the CIT(Appeal) and the Appellate Tribunal found that the movement of goods and corresponding purchases were not disputed, making the invocation of Section 68 inappropriate.

7. Comparison with Preceding Assessment Year Judgments:
The assessee argued that a similar addition was made for the preceding assessment year 2013-14, which was deleted by the Appellate Tribunal on 06.11.2023. The Tribunal found no incriminating material from the assessee's premises and noted that the addition was based on confessional statements unrelated to the assessee. The Tribunal applied the same reasoning to the current assessment year, setting aside the CIT(Appeal)'s order.

Result:
The appeal filed by the assessee (ITA No. 629/DEL/2022) was allowed, and the appeal filed by the Revenue (ITA/845/DEL/2022) was dismissed. The Appellate Tribunal set aside the CIT(Appeal)'s order, concluding that no incriminating material was found during the search and seizure operation, and the application of Section 68 and the different profit margin rate was erroneous.