2018 (4) TMI 633 - AT - Income Tax

Assessment u/s 153C - books of accounts or document did not belonged to assessee - Held that - In the instant case the books of account or documents did not belong to the assessee and therefore, the AO was not justified in initiating action against the assessee under section 153A read with section 153C. The hand written paper i.e. page no. 35 does not fall within the meaning of books of accounts or document and does not belong to the assessee, hence, the proceedings U/s 153C would not have been invoked against the assessee. Thus, the assessee has established before the Assessing Officer as well as the CIT(A) that the document does not belong to the assessee. The issue herein is squarely covered by the decision of the Hon ble Delhi High Court in Renu Constructions (2017 (9) TMI 670 - DELHI HIGH COURT), therefore, the order of the CIT(A) is set aside and appeal of the assessee is allowed

Issues Involved:
1. Legality of action under Section 153C of the Income Tax Act, 1961.
2. Validity of addition of ?2,00,000 as undisclosed income based on a loose paper seized during a search.

Issue-wise Detailed Analysis:

1. Legality of Action under Section 153C of the Income Tax Act, 1961:

The primary issue raised by the appellant was the initiation of proceedings under Section 153C of the Income Tax Act, 1961. The appellant contended that the action under Section 153C was erroneous as there was no seizure of any valuable article, thing, books of accounts, or documents during the search at the premises of M/S Surya Properties that belonged to them. The appellant argued that the seized documents did not belong to them and thus, the initiation of proceedings under Section 153C was not justified.

The tribunal noted that the documents seized during the search at M/S Surya Properties did not mention the appellant's name. The appellant consistently denied ownership of the documents throughout the assessment proceedings. The tribunal referred to the decision in P. Srinivas Naik vs. ACIT CC (2), 117 ITD 201 (Bangalore), which elaborated on the meaning of 'belong to.' It was emphasized that 'belonging' implies more than a casual association and involves continuity and an intimate connection with the person over a period of time. The tribunal concluded that the documents seized did not indicate any ownership interest of the appellant.

The tribunal also referred to the Hon'ble Delhi High Court's decision in CIT vs. Renu Constructions Pvt. Ltd. (ITA No.499/2011 dated 06.09.2017), which held that for initiating proceedings under Section 153C, the seized documents must belong to a person other than the one referred to in Section 153A. It was observed that the seized documents in the present case did not belong to the appellant, and thus, the action under Section 153C was not justified.

2. Validity of Addition of ?2,00,000 as Undisclosed Income:

The appellant contested the addition of ?2,00,000 as undisclosed income based on a loose paper seized during the search at M/S Surya Properties. The appellant argued that the loose paper did not constitute sufficient evidence for the addition, as no direct or corroborative evidence was found, and no opportunity for cross-examination of the searched party was provided.

The tribunal observed that the Assessing Officer and the CIT(A) heavily relied on the seized document, which was a handwritten note without any title, signature of the appellant, or their employees. The tribunal noted that the document did not conclusively prove that it belonged to the appellant. The tribunal emphasized that a taxing statute must be construed strictly, and in the absence of clear evidence, the addition could not be justified.

The tribunal referred to the decision of the Hon'ble Delhi High Court in CIT vs. Renu Constructions Pvt. Ltd., which reiterated that for initiating proceedings under Section 153C, the seized documents must belong to the other person. The tribunal concluded that the loose paper did not fall within the meaning of books of accounts or documents belonging to the appellant, and thus, the addition of ?2,00,000 as undisclosed income was not justified.

Conclusion:

The tribunal allowed the appeals of the appellant, setting aside the order of the CIT(A). It was held that the action under Section 153C of the Income Tax Act, 1961, was not justified as the seized documents did not belong to the appellant. Consequently, the addition of ?2,00,000 as undisclosed income based on the loose paper was also not justified. The appeals for both assessment years were allowed in favor of the appellant.

Order Pronounced:

The order was pronounced in the Open Court on 06th April, 2018.

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