2015 (4) TMI 717 - AT - Income Tax

Invoking the provisions of section 153C/153A - Held that - During the search and seizure operations on one Sh. Vipin Verma, certain incriminating evidence in the form of an agreement were found, which were forwarded to the Assessing Officer of the assessee and on the basis of the same, notice under section 132A was issued and assessment was completed. We find no infirmity in the order of the Assessing Officer in invoking the provisions of section 153C/153A of the Income-tax Act, 1961 - Decided against assessee. Unaccounted cash - addition of ₹ 70 lakhs and enhancement of ₹ 8,60,000 of addition made on the assessee on the basis of one agreement, which is placed at paper books 12 to 15, which was seized from the premises of Sh. Vipin Verma - Held that - The agreement is unsigned by the party, M/s. Splender Land Base Ltd. cannot be disputed that the assessee is acting as a commission agent, which has been admitted and accepted by the learned Commissioner of Income-tax (Appeals), who has computed the commission income at 2 per cent. of ₹ 4.30 crores received by the assessee on behalf of M/s. Splender Land Base Ltd., as per agreement seized during the search and seizure operations at the premises of Sh.Vipin Verma of Delhi. Out of the same agreement, the assessee had received cash of ₹ 70 lakhs, which the assessee claimed that the same has not been received and M/s. Splender Land Base Ltd. has also stated that the said cash has also not been paid. Therefore, on the basis of assumption and presumption, the learned Commissioner of Income-tax (Appeals) cannot come to the conclusion that the said cash has actually been received by the assessee. If the said cash has been received by the assessee then the said cash has been received for and on behalf of M/s. Splender Land Base Ltd. and the same has been paid to the farmers and such receipt can be treated as capital receipt and only a commission income at 2 percent can be added as income in the hands of the assessee, though the said amount of ₹ 70 lakhs have been added in the income of M/s. Splender Landbase Ltd. Therefore, there cannot be double taxation in the hands of the assessee unless proper agreement has been executed. The half-baked agreement cannot be a basis for addition of income. Commissioner of Income-tax (Appeals) is not justified in confirming the addition of ₹ 70 lakhs and enhancing the commission at ₹ 8,60,000. - Decided in favour of assessee.

Issues Involved:
1. Invocation of provisions under sections 153C/153A of the Income-tax Act, 1961.
2. Recording of satisfaction before issuing notice under section 153.
3. Addition of Rs. 70 lakhs under section 69A.
4. Validity of the agreement used as evidence.
5. Nature of the alleged receipts of Rs. 70 lakhs.
6. Onus on the Department to prove the investment.
7. Acceptance of account books and audited financial statements.
8. Denial of payment by Splendar Land Base Ltd.
9. Double addition of Rs. 70 lakhs in the hands of two assessees.
10. Basis for the addition of Rs. 70 lakhs.
11. Enhancement of income by Rs. 8,60,000 as commission.
12. Notice of enhancement by the Commissioner of Income-tax (Appeals).

Detailed Analysis:

1. Invocation of Provisions under Sections 153C/153A:
The assessee contested the invocation of sections 153C/153A, arguing there was no incriminating evidence to justify these proceedings. However, the Tribunal found that during a search on Sh. Vipin Verma, incriminating evidence, including an agreement, was discovered, justifying the issuance of notice under section 132A. The Tribunal upheld the Assessing Officer's actions, dismissing grounds 1 and 2.

2. Recording of Satisfaction:
The assessee claimed that the mandatory condition of recording satisfaction in writing was not fulfilled. The Tribunal, however, found that the necessary satisfaction note was recorded before issuing the notice under section 153C, thus dismissing this ground.

3. Addition of Rs. 70 Lakhs under Section 69A:
The addition of Rs. 70 lakhs was based on an unsigned agreement found during the search. The Tribunal noted that both the assessee and Splendar Land Base Ltd. denied the cash transactions. The Tribunal concluded that the agreement alone, without corroborative evidence, could not substantiate the addition, especially since the same amount was already taxed in the hands of Splendar Land Base Ltd. This ground was allowed in favor of the assessee.

4. Validity of the Agreement:
The agreement used as evidence was unsigned by Splendar Land Base Ltd. The Tribunal emphasized that an unsigned agreement could not be considered a valid document for making additions. The assessee's managing director's denial and the lack of signatures from the other party further weakened the document's validity.

5. Nature of the Alleged Receipts:
The assessee argued that the Rs. 70 lakhs were capital receipts and not income from undisclosed sources. The Tribunal agreed, noting that the assessee acted as a commission agent and the receipts were advances for land procurement, not taxable income.

6. Onus on the Department:
The Department failed to discharge the onus of proving that the assessee made any investment. The Tribunal found that the Assessing Officer's conclusions were based on assumptions without concrete evidence.

7. Acceptance of Account Books:
The Tribunal noted that the Assessing Officer had accepted the assessee's account books during the assessment proceedings. Therefore, no addition could be made to the total income based on the audited financial statements.

8. Denial of Payment by Splendar Land Base Ltd.:
Splendar Land Base Ltd. denied making any cash payment of Rs. 70 lakhs. The Tribunal found this denial significant, supporting the assessee's claim that the amount should not be added to its income.

9. Double Addition:
The Tribunal highlighted that the Rs. 70 lakhs had already been added to the income of Splendar Land Base Ltd. Thus, adding the same amount to the assessee's income would result in double taxation, which is not permissible.

10. Basis for the Addition:
The Tribunal criticized the addition of Rs. 70 lakhs based on assumptions and an unsigned agreement. The lack of corroborative evidence made the addition unjustifiable.

11. Enhancement of Income by Rs. 8,60,000:
The Commissioner of Income-tax (Appeals) enhanced the income by Rs. 8,60,000, attributing it to commission earned by the assessee. The Tribunal found this enhancement baseless, as the assessee's business model and accounting system did not support such an addition.

12. Notice of Enhancement:
The assessee argued that no notice of enhancement was given before the Commissioner of Income-tax (Appeals) made the addition. The Tribunal found this procedural lapse significant, further invalidating the enhancement.

Conclusion:
The Tribunal allowed the appeal partly, directing the deletion of all additions made. The order emphasized that the Assessing Officer and the Commissioner of Income-tax (Appeals) acted on assumptions without substantial evidence, leading to unjustifiable additions and enhancements.

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