2016 (11) TMI 289 - AT - Income Tax

Reassessment proceeding under section 153C - whether certain documents belonging to the assessee were found and seized during the search action under section 132 of the Act at the premises of Rajdarbar Group on 31st July, 2008 - Held that - Since no addition has been made on the basis of material seized belonging to assessee, on the basis of which, proceedings under section 153C of the Act have been initiated in the case of the assessee, in our opinion, the first condition of no incriminating material found in the case of the assessee, during the course of search, is satisfied. Regarding the second condition, the assessee submitted that assessment for the year under consideration was not abated as the return of income under section 139(1) of the Act was filed on 30/10/2005 and limitation for issue of notice under section 143(2) was also over and no notice under section 143(2) of the Act was received before the date of search, thus the proceedings in the assessment year under consideration stood completed. The learned Commissioner of Income Tax (Departmental Representative) also could not controvert this position of completion of assessment. As both the conditions laid down in the decision of Kabul Chawla 2015 (9) TMI 80 - DELHI HIGH COURT have been satisfied in the case of the assessee in the year under consideration, respectfully following it, we hold that no addition could have been made in the case of the assessee in the instant assessment year. - Decided in favour of assessee

Summary

Issues Involved:
1. Legality of the assumption of jurisdiction under Section 153C of the Income-tax Act.
2. Validity of the assessment framed under Section 153A/143(3) of the Income-tax Act.
3. Deletion of the addition made by the Assessing Officer on account of unaccounted purchases based on third-party statements.
4. Relevance and sufficiency of corroborative evidence in making additions.

Issue-wise Detailed Analysis:

1. Legality of the Assumption of Jurisdiction under Section 153C:

The assessee contested the legality of the jurisdiction assumed by the Assessing Officer (AO) under Section 153C of the Income-tax Act. The assessee argued that the notice issued under Section 153C and the subsequent assessment framed under Section 153A/143(3) were without jurisdiction as the statutory preconditions were not satisfied. Specifically, the assessee contended that no money, bullion, jewelry, or other valuable articles or documents belonging to the assessee were seized during the search on the Rajdarbar Group, making the notice under Section 153C invalid. The Tribunal found that the reassessment proceedings under Section 153C were initiated based on certain documents seized during the search at the Rajdarbar Group's premises. However, the additions were made based on third-party statements and not on any incriminating material seized from the assessee. Therefore, the Tribunal concluded that the assumption of jurisdiction under Section 153C was not justified.

2. Validity of the Assessment Framed under Section 153A/143(3):

The assessee argued that the assessment framed under Section 153A/143(3) was invalid as it was not based on any material seized during the search at the Rajdarbar Group's premises. The Tribunal referred to the judgments of the Delhi High Court in the cases of Commissioner of Income Tax (Central)-III, New Delhi Vs. Kabul Chawla and Commissioner of Income Tax-7 Vs. RRJ Securities Ltd. The Tribunal noted that if on the date of the search, the assessment already stood completed, and no incriminating material was unearthed during the search, no addition could be made to the income already assessed. In the present case, the assessment for the year under consideration was not abated, and no incriminating material was found during the search. Therefore, the Tribunal held that the assessment framed under Section 153A/143(3) was invalid.

3. Deletion of the Addition Made by the Assessing Officer:

The AO had made an addition of ?47,51,295/- on account of unaccounted purchases from M/s. Supariwala & Co. based on the statement of its proprietor, Sh. Mahabir Prasad Gupta. The Commissioner of Income Tax (Appeals) deleted the addition, holding that the addition based on the statement of a third party without any corroborative evidence was not tenable. The Tribunal upheld this view, noting that the addition was made solely on the basis of third-party statements and not on any incriminating material seized during the search. The Tribunal emphasized that the presumption under Section 132(4A) applies only to the person from whose possession the incriminating material is found and cannot be extended to third parties without corroborative evidence.

4. Relevance and Sufficiency of Corroborative Evidence:

The Tribunal observed that the entire addition was based on the statement of Sh. Mahabir Prasad Gupta and the AO's estimation of gross profit. The Tribunal noted that no reference was made to any seized material or other evidence to corroborate the findings of unaccounted production or sale. The Tribunal reiterated that the presumption regarding the correctness of the contents of books of account or documents cannot be raised against a third party without corroborative evidence. Therefore, the Tribunal concluded that the addition made by the AO was not justified.

Conclusion:

The Tribunal allowed the cross-objection of the assessee, holding that no addition could be made in the absence of incriminating material found during the search. Consequently, the appeal of the Revenue challenging the merit of the addition was rendered infructuous and dismissed. The Tribunal's decision was pronounced in the open court on 30th September 2016.