2019 (5) TMI 1265 - AT - Income Tax

Assessment u/s 153C - no incriminating document was found - addition relating to photocopy of gift deed found in search action with the donors and disallowance of various expenses on adhoc basis @ 5% - HELD THAT - The assessment proceedings are initiated in case of the person searched u/s 153A wherein also assessment for six years immediately preceding the year of search are open for assessment or reassessment. Further proceedings can be initiated u/s 153C against other person in case any document or asset is found relating to him. So there is no merit in the order of CIT(A) in holding that word incriminating is not mentioned to the document found seized or requisitioned in section 153C is an incorrect interpretation of law. Search and seizure machinery is to be initiated in order to detect the undisclosed income or property of the person searched and in case during the course of search of a person any document relating to any other person is found then such a transaction which is recorded in the books of account of such other person cannot be the basis for initiating action u/s 153C which admittedly are relation to the determination of undisclosed income / property in the hands of such other person. Accordingly we hold so. Addition of gift - Coming to the facts of present case search u/s 132 was conducted on the premises of Ashoka group of cases on 20.04.2010 the alleged undisclosed income was on account of gift deed which was executed on 02.02.2010 i.e. relevant for financial year 2009-10 which is the year before the year of search. Since the search took place in April 2010 on the basis of copy of such gift deed which is one time transaction there is no merit in initiating proceedings u/s 153C starting from assessment year 2005-06 onwards. No such gift deed was found for those years - as perused the assessment records which revealed that no incriminating material at all was found during the course of search or survey in Ashoka group Assessing Officer has failed to bring anything incriminating with regard to donations received by the assessee trust in pursuing its various objects or with regard to inflated expenses if any. there is no specific doubt over the correctness of expenses claimed by the assessee trust in various assessment years under reference. In such scenario where no incriminating material at all was found against the assessee there is no merit in initiating proceedings u/s 153C for assessment years 2005-06 to 2009-10. Assessment year 2010-11 i.e. the year in which gift deed was executed again the document which was found was in respect of transaction which was duly recorded in the books of account of both the donor and donee and such a document to be even though belonging to assessee cannot be the basis for initiating proceedings u/s 153C ; since it has failed to fulfill the basic condition of it being an incriminating document which kick start from the search action being carried out under the provisions of section 132. Accordingly we hold that proceedings initiated u/s 153C against the assessee for assessment year 2010-11 are without any basis and initiation is bad in law. Consequently the assessment order passed u/s 143(3) r.w.s. 153C of the Act for assessment years 2005-06 to 2010-11 do not stand and the same are held to be bad in law.- Decided in favour of assessee

Summary

Issues Involved:
1. Validity of notice issued under Section 153C of the Income-tax Act, 1961.
2. Disallowance of various expenses on an ad hoc basis at 5%.

Issue-Wise Detailed Analysis:

1. Validity of Notice Issued Under Section 153C:

The primary contention raised by the assessee was that the notice issued under Section 153C of the Income-tax Act, 1961, was not valid. The assessee argued that the document (a photocopy of a gift deed) found during the search action did not belong to the assessee and was not incriminating. The assessee emphasized that the gift deed was duly recorded in the books of account and no addition was made based on this document. The CIT(A) upheld the initiation of proceedings under Section 153C, stating that the document found during the search belonged to the assessee and triggered the proceedings. However, the CIT(A) noted that the Assessing Officer's action was not correct and limited the disallowance to 5% of expenses.

The Tribunal examined the provisions of Section 153C and concluded that the document found must have a bearing on the determination of the total income of the assessee. The Tribunal held that if a document found during the search is already recorded in the books of account, it cannot be the basis for initiating proceedings under Section 153C. In this case, the gift deed was duly recorded in the books of account, and no incriminating material was found. Therefore, the Tribunal concluded that the initiation of proceedings under Section 153C for assessment years 2005-06 to 2010-11 was without any basis and held the assessment orders to be bad in law.

2. Disallowance of Various Expenses on an Ad Hoc Basis at 5%:

The assessee challenged the disallowance of various expenses on an ad hoc basis at 5%. The CIT(A) noted that no incriminating material was found during the search or survey to suggest that the assessee had inflated expenses or suppressed receipts. The books of account were maintained on a computer, and the Assessing Officer had not brought any specific discrepancies on record. The CIT(A) observed that the accounts of the assessee trust were subject to audit, and there was no specific doubt over the correctness of expenses claimed. However, the CIT(A) estimated a disallowance of 5% of total expenses under the head 'Establishment' and 'For object of trust.'

The Tribunal, after considering the facts and circumstances, concluded that the disallowance made by the Assessing Officer was without rejecting the books of account or bringing any incriminating material on record. Therefore, the Tribunal held that there was no merit in the ad hoc disallowance of 5% of expenses.

Conclusion:

The Tribunal allowed the appeals of the assessee, holding that the initiation of proceedings under Section 153C was bad in law and the assessment orders for the years 2005-06 to 2010-11 did not stand. Consequently, the grounds of appeal raised by the assessee on the jurisdictional issue were allowed, and the other grounds on merits became academic in nature. All the appeals of the assessee were allowed.