2014 (1) TMI 396 - AT - Income Tax

Validity of assessment u/s 153A - Held that - Warrant of authorisation u/s 132 was issued in the joint names of three persons, M/s Lahari Constructions, M/s Lahari Infrastructure Ltd and Others - The authority who signed the warrant had information in his possession and had reason to believe that these three persons are in possession of undisclosed assets such as money, bullion etc - He has signed the warrant in the joint names of three persons - The authorizing authority had information in his possession in consequence of which he had reason to believe that undisclosed income is in the possession of M.P.B. Kutumba Rao - If the Authorising Officer intended to search Shri M.P.B. Kutumba Rao himself, he should have issued an independent warrant and search individually for conducting search in his case only - It is not open for the assessing authority to assess Shri M.P.B. Kutumba Rao u/s 153A of the Act on the basis of seized documents seized during the course of search pursuant to the warrant of authorisation which in the joint of names - The provisions of section 153A are not applicable as the warrant was not issued in the name of Shri M.P.B. Kutumba Rao - If the Assessing Officer wanted to make assessment in the case of the assessee, he should have done u/s 153C of the IT Act - Decided against Revenue. Estimation of income u/s 44AD - Held that - Following M/s C. Eswara Reddy & Co 2011 (1) TMI 1238 - ITAT HYDERABAD - The assessee has taken contracts from Nagarjuna Construction Company, which, in turn, has taken the main contract from the Government - The estimation of 5% net profit on gross receipts as held by the Tribunal is justified - As per the provision of section 44AD as applicable for the assessment year under consideration and the provisions which are applicable with effect from 1.4.2011 - The deduction available u/s 30 to 38 shall be deemed to have been already given full effect and no further deduction under those sections shall be allowed - No further deduction shall be allowed for depreciation - Partly allowed in favour of assessee. Interest deduction u/s 24 - Held that - The assessee has furnished certificate given by Oriental Bank of Commerce dated 22/09/2008 regarding the details of payment of housing loan for FY 2007-08 from 01/04/2007 to 31/03/2008 towards principal and interest paid by the assessee - The learned counsel submitted that only after completion of house, repayment has been started and therefore assessee is entitled for deduction towards housing loan interest - The learned DR has not controverted the submissions of the assessee nor brought any contrary material on record to suggest that the submissions made by the assessee are wrong - Decided in favour of assessee. Income from sale of land - Held that - Following CIT Vs. Intezar Ali 2013 (8) TMI 704 - ALLAHABAD HIGH COURT - The sale consideration received by the assessee only from the sale of agricultural property is to be treated as income from sale of agricultural land - The Department has not brought anything on record to establish that the amount deposited by the assessee is from other sources - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of additions made under Section 153A without seized material.
2. Validity of assessment under Section 153A in the absence of a search warrant in the name of the assessee.
3. Estimation of income and disallowance of expenditures.
4. Treatment of unexplained income and interest on housing loan.
5. Treatment of sale proceeds from agricultural land.

Issue-wise Detailed Analysis:

1. Validity of Additions Made Under Section 153A Without Seized Material:
The revenue contended that the CIT(A) erred in deleting additions made by the Assessing Officer on the grounds that no addition can be made under Section 153A unless supported by seized material. The CIT(A) quashed the assessment orders for AY 2002-03 to 2005-06, reasoning that additions cannot be made under Section 153A without any seized material suggesting the income of the assessee. The Tribunal upheld this view, emphasizing that the assessment framed under Section 153A is not valid without supporting seized material.

2. Validity of Assessment Under Section 153A in the Absence of a Search Warrant in the Name of the Assessee:
The assessee argued that the assessment under Section 153A was invalid as the search warrant was not issued in their name but in the name of M/s Lahari Constructions and M/s Lahari Infrastructure Ltd. The Tribunal examined the warrant of authorization and concluded that it was not a common warrant and did not include the assessee. It was held that the assessment under Section 153A is invalid if the search warrant is not issued in the name of the assessee. The Tribunal quashed the assessments framed under Section 153A for AY 2002-03 to 2005-06 and allowed the assessee's appeals for AY 2006-07 and 2007-08.

3. Estimation of Income and Disallowance of Expenditures:
For AY 2008-09, the CIT(A) directed the Assessing Officer to estimate the net profit at 8% of the gross bills and allow depreciation as per entitlement. The Tribunal referenced a coordinate bench decision, which justified estimating the profit at 8% for main contracts and 5% for sub-contracts. The Tribunal directed the Assessing Officer to apply a 5% net profit rate on gross receipts if the assessee had taken sub-contracts from Nagarjuna Construction Company.

4. Treatment of Unexplained Income and Interest on Housing Loan:
The CIT(A) confirmed the addition of Rs. 39 lakhs made by the Assessing Officer for unexplained income but directed the AO to verify the sum received through bank transfers. The Tribunal dismissed this ground as not pressed by the assessee. Regarding the interest on housing loan, the Tribunal directed the AO to allow the assessee's claim based on the certificate from the Oriental Bank of Commerce, confirming the repayment of the loan.

5. Treatment of Sale Proceeds from Agricultural Land:
The CIT(A) treated Rs. 50,30,000/- received by the assessee as unexplained income due to a lack of supporting documents. The Tribunal, however, found that the sale proceeds were from the sale of agricultural land and directed the AO to treat the amount as income from the sale of agricultural property, unless contrary evidence was provided. The Tribunal referenced the Allahabad High Court's decision in CIT vs. Intezar Ali, which held that sale proceeds deposited in the bank account should be treated as income from the sale of a capital asset.

Conclusion:
The Tribunal dismissed the revenue's appeals and allowed the assessee's cross-objections and appeals for AY 2006-07 and 2007-08, quashing the assessments framed under Section 153A. The appeal for AY 2008-09 was partly allowed for statistical purposes, directing the AO to verify and treat the sale proceeds from agricultural land accordingly.