2014 (9) TMI 274 - AT - Income Tax

Initiation of proceedings u/s 153C r.w. section 153A Seized material has no reference to the assessee - Held that - As decided in Sri Pulla Gangadhar Rao, Hyderabad vs. ACIT, Cir.8(1), Hyderabad 2014 (9) TMI 212 - ITAT HYDERABAD - the documents, i.e. the three loose papers recovered during the search proceedings do not belong to the petitioner - there is a reference to the petitioner inasmuch as his name is reflected in the list under the heading Samutkarsh Members Details and certain details are given under different columns against the name of the petitioner along with other members, however, it is nobody s case that the documents belong to the petitioner - the seized document on the basis of which proceeding u/s 153C was initiated cannot be said to be belonging to the assessee - the assumption of jurisdiction u/s 153C has to be held as invalid and consequentially the assessment order passed must be declared as without jurisdiction. Since the seized material has no reference to the assessee, it cannot be considered to be belonging to the assessee for enabling the initiation of proceedings u/s 153C of the Act - as the AO has relied upon the same seized material i.e., A/DNR/18 and since the seized material has no reference to the assessee, it cannot be said to be belonging to the assessee so as to empower the AO to assume jurisdiction u/s 153C of the Act - the assessment proceedings initiated not being in accordance with the provisions of section 153C, and is invalid in law and consequently the assessment order passed is nullity in eye of law the order of the CIT(A) is set aside Decided in favour of assessee.

Issues Involved:
1. Validity of proceedings under Section 153C.
2. Determination of actual sale consideration.
3. Addition of unexplained investment under Section 69.
4. Consideration of additional evidence and cross-examination rights.

Detailed Analysis:

1. Validity of Proceedings under Section 153C:
The assessees challenged the initiation of proceedings under Section 153C, arguing that there was no incriminating material to assume jurisdiction. The CIT(A) upheld the initiation, stating that the documents belonged to the assessees. However, the Tribunal found that the seized material did not mention the assessees' names and was in the name of Mr. Chakradhara Rao, who was not questioned. The Tribunal referenced similar cases (e.g., P. Gangadhar Rao, M/s. Shouri Constructions, and T. Jaipal Reddy) where proceedings under Section 153C were quashed due to lack of direct reference to the assessees in the seized documents. The Tribunal concluded that the seized document did not belong to the assessees, making the initiation of proceedings under Section 153C invalid.

2. Determination of Actual Sale Consideration:
The Assessing Officer (AO) determined that the actual sale consideration for the property was Rs. 94,50,000 based on seized documents and confirmations from sellers. The assessees contended that they only paid Rs. 18,37,500 as per the sale deed. The Tribunal noted inconsistencies and lack of direct evidence linking the seized document to the assessees. The Tribunal highlighted that similar transactions involving the same parties had been assessed differently, questioning the reliability of the evidence. The Tribunal found no co-relation between the seized document and the assessees' transaction, thus rejecting the AO's determination of the higher sale consideration.

3. Addition of Unexplained Investment under Section 69:
The AO treated the difference between the declared sale consideration and the amount noted in the seized document as unexplained investment under Section 69, adding Rs. 38,06,250 to the assessees' income. The Tribunal, however, found that the seized document did not pertain to the assessees and lacked sufficient evidence to substantiate the AO's claim. Consequently, the Tribunal invalidated the addition of unexplained investment.

4. Consideration of Additional Evidence and Cross-Examination Rights:
The assessees argued that the seized document was provided only during the appeal and that they were not allowed to cross-examine the person who deposed. The Tribunal emphasized the importance of cross-examination and the right to challenge evidence. The Tribunal found that the CIT(A) failed to consider these procedural lapses, which further weakened the case against the assessees.

Conclusion:
The Tribunal allowed the appeals, declaring the initiation of proceedings under Section 153C invalid due to the lack of incriminating material directly linking the assessees. The Tribunal also invalidated the addition of unexplained investment, citing insufficient evidence and procedural lapses. The assessment orders were set aside, and the appeals were allowed on legal grounds.

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