2025 (1) TMI 564 - AT - Income Tax

Validity of proceedings u/s 153A - whether search operation was conducted based on credible information and substantial unaccounted income was discovered during the search operation? - HELD THAT - The search operation was carried out based on valid information gathered against the assessee along with associates/relatives and large scale investments were also found by the department during the relevant year. Accordingly, AO initiated proceedings u/s 153A of the Act and the assessment was completed making some additions on the basis of substantial unaccounted income after giving due opportunity to the assessee. We note that the order passed u/s 263 of the Act passed by the ld. CIT(Central), Patna had already upheld by the ITAT in its order dated 01.02.2008 and the order passed by the Tribunal attained finality as it was not challenged before any higher forum. Therefore, this ground taken by the assessee is hereby dismissed. Addition on account of household expenses including payment of insurance premium - CIT(A) while passing the impugned order discussed the facts of the issue at length and allowed partial relief to the assessee @ Rs. 2750 per month i.e. Rs. 33000/- per annum for the assessment year 2002-03 and the ld. CIT(A) by applying the same analogy for the relevant assessment year i.e. 2001-02 restricted the addition to the extent of Rs. 64000/-. We do not find any interference in the order of the ld. CIT(A) and deem it correct since no contrary evidence was filed by the assessee before the AO as well as the ld. CIT(A) during the proceedings. Therefore, we sustain the addition made by the ld. CIT(A) and dismiss this ground taken by the assessee. Inclusion of income in the hands of Sri Indrajeet Singh as income of the assessee - Assessee had used multiple alias names such as Indrajeet Kumar (Singh) and Ranjit Singh which was clearly evident from the bail petition filed before Hon ble Patna High Court. We also find that income assessed in the name of Indrajeet Kumar in the hands of the assessee as there was no separate existence found for different proceedings by the Assessing Officer. Therefore, we find that the ld. CIT(A) has rightly upheld the order of the ld. CIT(A) in respect of inclusion of income in the hands of Sri Indrajeet Singh as income of the assessee. We also dismiss this ground taken by the assessee. Addition being gift received from grandmother - Assessee has failed to prove his claim before the AO as well as before the ld. CIT(A) regarding the confirmation of the addition received as gift from grandmother i.e. Smt. Pano Devi during the relevant assessment year. Since, the donor Smt. Pano Devi, grandmother of the assessee, has no disclosed source to substantiate the claim of gift made to the assessee, we accordingly uphold the order of the ld. CIT(A). This ground of the assessee is dismissed. Addition as made on estimation basis - unexplained income of the assessee - HELD THAT - As in the instant issue, the Assessing Officer has not brought on record any material or valid proof in order to validate the existence or continuation of onion business of the assessee. Therefore, the alleged addition made by the AO of Rs. 80,000/- in the hands of the assessee was not correct and accordingly the instant ground taken by the assessee is allowed. Accordingly, we delete the entire addition of Rs. 80,000/- in the hands of the assessee. This ground of the assessee is allowed.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions addressed in this judgment include:

The legality of proceedings initiated under Section 153A of the Income Tax Act pursuant to a search under Section 132(1).
The correctness of various additions made to the assessee's income, including household expenses, unexplained income, and gifts.
The inclusion of income assessed in the name of another individual (Indrajeet Kumar/Prasad Singh) as the income of the appellant.
The treatment of opening balances as undisclosed income.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Legality of Proceedings under Section 153A

Relevant Legal Framework and Precedents: Section 153A allows for assessment or reassessment of income if a search is conducted under Section 132. The validity of such proceedings hinges on the presence of credible information leading to the search.
Court's Interpretation and Reasoning: The Tribunal found that the search was conducted based on credible information, and substantial unaccounted income was discovered. The proceedings were thus deemed legal.
Key Evidence and Findings: The search operation revealed substantial investments and undisclosed income, justifying the initiation of proceedings under Section 153A.
Application of Law to Facts: The Tribunal upheld the legality of the proceedings, noting that the search was based on valid information and the order under Section 263 was upheld by the ITAT previously.
Treatment of Competing Arguments: The assessee's challenge to the legality was dismissed due to lack of evidence against the search's validity.
Conclusions: The proceedings under Section 153A were upheld as legal.

Issue 2: Additions to Income

Relevant Legal Framework and Precedents: The Income Tax Act allows for additions to income if there is evidence of unaccounted funds or expenses.
Court's Interpretation and Reasoning: The Tribunal evaluated each addition on its merits, considering the evidence presented and the consistency of the Assessing Officer's approach.
Key Evidence and Findings: Evidence included LIC policies, bail petitions, and affidavits. The Tribunal found inconsistencies in the assessee's claims and upheld most additions.
Application of Law to Facts: Additions were justified based on evidence of low withdrawals, unsubstantiated gifts, and unexplained bank deposits.
Treatment of Competing Arguments: The assessee's claims were largely unsupported by evidence, leading to the dismissal of most grounds.
Conclusions: Most additions were upheld, with partial relief granted where inconsistencies were found in the Assessing Officer's approach.

Issue 3: Inclusion of Income from Another Individual

Relevant Legal Framework and Precedents: Income can be assessed in the hands of the correct individual if there is evidence of alias use or non-existence of another entity.
Court's Interpretation and Reasoning: The Tribunal found that the assessee used multiple aliases, and there was no separate existence for the individual in whose name the income was initially assessed.
Key Evidence and Findings: Bail petitions and LIC policies indicated that the aliases were used by the assessee himself.
Application of Law to Facts: The income initially assessed in the name of Indrajeet Kumar was rightly included in the assessee's income.
Treatment of Competing Arguments: The assessee failed to provide evidence of separate existence, leading to the dismissal of this ground.
Conclusions: The inclusion of income from the alias was upheld.

Issue 4: Treatment of Opening Balances as Undisclosed Income

Relevant Legal Framework and Precedents: Opening balances must be substantiated with evidence to avoid being treated as undisclosed income.
Court's Interpretation and Reasoning: The Tribunal found that the assessee failed to provide credible evidence for the opening balance.
Key Evidence and Findings: The affidavit provided was dated after the assessment order, and no supporting documents were available.
Application of Law to Facts: The opening balance was treated as undisclosed income due to lack of evidence.
Treatment of Competing Arguments: The assessee's claims were unsupported, leading to the dismissal of this ground.
Conclusions: The treatment of the opening balance as undisclosed income was upheld.

3. SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning: "The search operation was carried out based on valid information gathered against the assessee along with associates/relatives and large scale investments were also found by the department during the relevant year."
Core Principles Established: The legality of proceedings under Section 153A is upheld if based on credible information. Additions to income require substantial evidence, and aliases can lead to income reassessment.
Final Determinations on Each Issue: The proceedings under Section 153A were upheld; most additions to income were sustained; the inclusion of income from aliases was confirmed; and the opening balance was treated as undisclosed income.

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