2017 (11) TMI 70 - AT - Income Tax

Proceedings U/s.153A - Held that - The addition in the case of the assessee can be made by the Assessing Officer only on the basis of incriminating material found during the course of search. No doubt, before us learned DR has placed reliance on the decision in the case of Filatex India Ltd vs CIT (2014 (8) TMI 387 - DELHI HIGH COURT) as well as Canara Housing Development Company Ltd. (2014 (8) TMI 642 - KARNATAKA HIGH COURT) in which it was held by the respective High Court held that the assessing authority shall determine the total income of the assessee taking into consideration the materials which was the subject-matter of earlier return and the undisclosed income unearthed during search and also any other income which comes to his notice. But when we have jurisdictional High Court decision, that will be binding before us and, thus, we are bound to follow the decision in the case of CIT vs. Continental Warehousing Corporation (Nhava Sheva) Ltd. (2015 (5) TMI 656 - BOMBAY HIGH COURT) as held If there is no incriminating material found during the search, then, the power under section 153A being not expected to be exercised routinely, should be exercised if the search reveals any incriminating material. Addition u/s. 68 relate to the cash deposited by the assessee in its bank accounts - Held that - As these bank accounts were not found during the course of the search. Even the learned DR did not produce any material showing that these banks accounts were found during the course of search. In these circumstances, we are bound to delete the addition made u/s. 68 in each of the assessment years. Thus, ground no.2 of the assessee s appeal in each of the assessment yeas is allowed and we delete the additions made u/s. 68 of ₹ 5,85,600/- ₹ 4,31,800/-, ₹ 12,52,200/- ₹ 11,43,000/- and ₹ 2,73,850/- respectively. Addition u/s. 69C towards investment in the residential flat - Held that - We noted that in this case, the assessee has made an investment of ₹ 61 lacs as has been disclosed by the assessee s husband in the statement recorded u/s. 132(4). Out of the said sum of ₹ 61 lacs, ₹ 5 lacs has been paid by the assessee and ₹ 20 lacs has been paid by the assessee s husband, which has been shown in his IT return copy of which has filed before us. For the balance amount of ₹ 36 lacs, the assessee has not proved any source. Therefore, we confirm the addition of ₹ 36 lacs as undisclosed investment u/s. 69C of the I.T Act. Thus, ground no.3 in A.Y. 2007-08 is partly allowed, thereby reducing the addition of ₹ 56 lacs to ₹ 36 lacs. Penalty imposed u/s. 271(1)(c) - Held that - We noted that the penalty has been levied and confirmed by the CIT(A) on the additions in each of the assessment year. Since, we have deleted the additions in the preceding paragraphs while dealing with the quantum appeals, the penalty will also get deleted.

Summary

Issues Involved:
1. Jurisdiction under Section 153A of the Income Tax Act.
2. Validity of additions under Section 68 for cash deposits.
3. Validity of addition under Section 69C for investment in a residential flat.
4. Penalty under Section 271(1)(c) related to the additions made.

Detailed Analysis:

Jurisdiction under Section 153A:
The assessee challenged the jurisdiction of the Assessing Officer (AO) under Section 153A, arguing that the proceedings under Section 132 were illegal and that there was no valid search warrant or Panchnama on the date of the search. The Tribunal noted that the search took place on 24.02.2009 and the warrant of authorization was dated 05.03.2009, executed on 06.03.2009, which was in continuation of the earlier search. The Tribunal referred to the decision of the Hon’ble Bombay High Court in CIT vs. Continental Warehousing Corporation (Nhava Sheva) Ltd., which clarified that additions under Section 153A can only be made based on incriminating material found during the search if the assessments were not pending and had attained finality. Since the assessments were completed under Section 143(1) and were not pending, the Tribunal concluded that the AO could not make additions under Section 153A without incriminating material found during the search.

Validity of Additions under Section 68:
The AO made additions under Section 68 for cash deposits in the assessee's bank accounts for various assessment years. The Tribunal found that these bank accounts were not discovered during the search, and no incriminating material was found related to these deposits. Therefore, following the jurisdictional High Court decision, the Tribunal deleted the additions made under Section 68 for the assessment years 2003-04, 2004-05, 2005-06, 2006-07, and 2007-08.

Validity of Addition under Section 69C:
For the assessment year 2007-08, the AO made an addition of ?56,00,000 under Section 69C towards investment in a residential flat based on the statement of the assessee’s husband. The Tribunal considered whether the statement recorded during the search could be treated as incriminating material. Referring to the decision of the Hon’ble Kerala High Court in CIT vs. M/s. St. Francis Clay Decor Tiles, the Tribunal accepted the statement as incriminating material. However, it noted that ?20,00,000 was paid by the assessee's husband and shown in his IT return, and ?5,00,000 was paid by the assessee. The Tribunal concluded that the remaining unexplained investment was ?36,00,000 and confirmed this addition under Section 69C, reducing the original addition from ?56,00,000 to ?36,00,000.

Penalty under Section 271(1)(c):
The Tribunal addressed the appeals related to penalties imposed under Section 271(1)(c) for the assessment years 2004-05, 2005-06, and 2006-07. Since the additions for these years were deleted in the quantum appeals, the Tribunal held that the penalties would also be deleted.

Conclusion:
The appeals for the assessment years 2003-04 to 2006-07 were allowed, and the appeal for the assessment year 2007-08 was partly allowed. The additions under Section 68 were deleted for all relevant years, and the addition under Section 69C for the assessment year 2007-08 was reduced from ?56,00,000 to ?36,00,000. Consequently, the penalties under Section 271(1)(c) were also deleted.