2017 (7) TMI 354 - AT - Income Tax

Assessment u/s 153C - whether any incriminating documents found for making addition of cash receipts - Held that - Neither the seized documents pertained to the impugned assessment year, nor any other document was found, which reflected the addition made in the case of the assessee. Therefore, there was no incriminating material available with the Assessing Officer which pertained to the impugned assessment year and which could have led to the addition made in the present case. Further it is not denied that the assessment in the present case was completed on the date of search, since the time limitation for issue of notice u/s 143(2) had expired on 30-09-10 while search was conducted on 17 11-10. AO had no jurisdiction to interfere in the completed assessment in the present case and frame the assessment u/s 153C making addition therein in the absence of any incriminating material. - Decided in favour of assessee. Addition made u/s 68 - Held that - In the present case we hold that the assessee had given a credible explanation that the amount received in cash of ₹ 49,50,000/- was money refunded by one Sh. Balwant Rai Rehawar given to him on account of a land deal and refunded since the deal did not mature. The explanation was duly substantiated by the various documents produced. The onus now rested with the Assessing Officer to prove that the explanation of the assessee was false. The AO having failed to discharge this onus, has made the addition merely on the basis of suspicion which is not permissible as held by the jurisdictional high court. Thus no addition under section 68 of the Act is called for - Decided in favour of assessee.

Issues Involved:
1. Validity of notice issued under Section 153C of the Income Tax Act, 1961.
2. Addition of ?49,50,000 under Section 68 of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Validity of Notice Issued Under Section 153C:

During the course of the hearing, the assessee raised additional grounds challenging the issuance of notice under Section 153C of the Income Tax Act, 1961, arguing that no incriminating document was found during the search of a third party. The search and seizure operation was conducted on 17.11.2010 in Dr. Naresh Mittal Group of cases, and the notice under Section 153C was issued to the assessee on 17.8.2012.

The assessee contended that the addition made was unwarranted as no incriminating material pertaining to the addition of unexplained cash or relating to the impugned year was found during the search. The only document seized was a cash book that did not pertain to the impugned assessment year but to the preceding year (April 2007 to January 2008). The addition of ?49,50,000 was based on cash entries in the books of the assessee, not reflected in the seized document.

The Tribunal noted that the issue raised was whether the Assessing Officer (AO) had the power to issue notice under Section 153C and make an addition in the absence of incriminating documents found during the search. The Tribunal found merit in the assessee's contention, referring to the Delhi High Court's decision in RRJ Securities, which held that completed assessments could only be interfered with based on incriminating material found during the search. The Tribunal concluded that the AO had no jurisdiction to issue notice under Section 153C and make the addition of ?49,50,000 in the absence of any incriminating material.

Therefore, the additional grounds of appeal raised by the assessee were allowed.

2. Addition of ?49,50,000 Under Section 68:

The assessee challenged the addition of ?49,50,000 made under Section 68, which pertains to unexplained cash credits. The assessee had shown cash receipts from Shri Balwant Rai Rehawar, claiming it was a repayment of an advance given by the assessee's mother for a land deal that did not fructify. The assessee provided various documents, including affidavits, "Behami Faisla" (a mutual agreement), death certificate, and confirmatory letters from timber merchants to substantiate the claim.

The AO rejected the assessee's explanation, considering the documents unregistered and self-serving, and made the addition under Section 68. The CIT (Appeals) upheld the AO's decision.

Before the Tribunal, the assessee argued that it had discharged its onus of explaining the nature and source of the cash receipts with credible evidence. The Tribunal found merit in the assessee's contention, noting that the assessee had provided substantial evidence, including affidavits, balance sheets, and confirmatory letters. The Tribunal observed that the AO did not cross-examine the witnesses produced by the assessee and failed to investigate the veracity of the confirmations provided by the timber merchants.

The Tribunal referred to the Punjab and Haryana High Court's decision in CIT (Central)-III v. Kabul Chawla, which held that the onus shifts to the Revenue to prove the falsity of the assessee's explanation once a credible explanation is provided. The Tribunal concluded that the assessee had discharged its onus, and the AO had failed to prove the explanation false. Therefore, the addition under Section 68 was not warranted.

The Tribunal set aside the order of the CIT (Appeals) and deleted the addition of ?49,50,000, allowing the assessee's appeal.

Conclusion:

The appeal of the assessee was allowed, with the Tribunal holding that the AO had no jurisdiction to issue notice under Section 153C and make the addition of ?49,50,000 in the absence of incriminating material. Additionally, the Tribunal found that the assessee had satisfactorily explained the nature and source of the cash receipts, and the addition under Section 68 was not justified.

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