2020 (9) TMI 1007 - AT - Income Tax

Assessment u/s 153A - addition of cash found during the course of search - unexplained advances - as contented Addition was made simply on the basis of disclosure of such income before the settlement commission which was done to meet the compliance of the provisions of Section 245C(1) - HELD THAT - From the record we found that during the course of search, the assessee has surrendered ₹ 15,89,65,200/-. Yearwise breakup of the income surrendered as given at para 3 of this order hereinabove, we found that in the A.Y. 2008-09 and 2009-10, the A.O. had made addition of ₹ 1.50 lacs and ₹ 2.00 lacs respectively on account of advances surrendered by the assessee. We also found that the detailed finding has been given by the A.O. and the ld. CIT(A) with regard to amount found to have been advanced by the assessee, accordingly, we confirm the addition of ₹ 1.50 lacs in the A.Y. 2008-09 and ₹ 2.00 lacs in the A.Y. 2009-10. Income surrendered by the assessee before the Settlement Commission on account of scrap business - HELD THAT - CIT(A) in the impugned order given a categorical finding that no evidence was found during the course of search to justify the disclosure of income from scrap business. The A.O. also has not quoted or referred to any document found during search with respect to income from scrap business. No addition could have been made u/s 153A unless the same is linked with the material found during search. In view of these facts, the ld. CIT(A) concluded that the addition made by the A.O. is uncalled and deserves to be deleted. The detailed finding given by the ld. CIT(A) has not been controverted by the ld DR, accordingly, we do not find any reason to interfere in the finding so recorded by the ld. CIT(A) for deleting the addition of ₹ 15.00 lacs made by the A.O. on account of scrap trading. Interest earned on undisclosed advance - HELD THAT - There is no material on record so as to establish that assessee received interest on the alleged advances. It is the working of the mind of the A.O. that has resulted in addition on account of interest. The interest has been calculated notionally and addition has been made accordingly. Decision of the Ld. CIT(A) is based on many judicial pronouncement and sound law. Therefore, the decision of the Ld. CIT(A) in deleting the addition deserves to be confirmed. Addition on account of interest earned on undisclosed advance was deleted by the ld. CIT(A) by having the same observation to the effect that addition was made by the A.O. by presuming that the assessee had earned interest on advances although no evidence was found during the course of search. After giving detailed finding, the ld. CIT(A) has concluded that no addition could be made simply on the basis of presumption as the presumption, however, strong cannot take the place of evidence. We found that while deleting the impugned addition of notional interest, the ld. CIT(A) has deliberated on various judicial pronouncements as referred to in his order and after applying the proposition of law laid down therein to the facts of instant case and concluded that the addition so made on account of notional interest is not warranted. Addition of unexplained transaction - HELD THAT - Since the assessment u/s 143 is to be made after hearing such evidences as the assessee may produce and such other evidence as the assessment officer may require is specified points, and after taking into account all relevant material which he has gathered, the A.O. shall make an assessment of the total income. Since the primary onus to tax any income is upon the revenue and since the A.O. failed to bring out any such material for taxing the income of ₹ 4.00 crores, in our considered opinion the same is not sustainable on the facts of the case as also in law. Having examined the seized material, it is not discernible as to how such material demonstrates that the assessee has earned the income of ₹ 4.00 crores. Detailed finding so given by the ld. CIT(A) while deleting addition above has not been controverted by the ld DR by bringing any positive material on record, accordingly, we do not find any reason to interfere in the findings so recorded by the ld. CIT(A) which are as per material on record. Unexplained investment in jewellery - unexplained gold jewellery, diamond and silver items - HELD THAT - CIT(A) considering the status of the family and traditions has allowed 200 grams for children and thus benefit has been given of 200 grams of gold and remaining 300 grams has been treated as unexplained of the value of ₹ 8,85,000/-. Assessee has disclosed 189.620 carats of gold in wealth tax and IT returns as against 373.620 grams found during search. Thus 184 grams remained to be explained. The assessee had pleaded that considering the status of family, number of family members, traditions in the traditional marwadi family more credit required to be given of the diamond found during search. CIT(A) has given credit of 25% of 184 carats of diamond which remained unexplained. Thus 46 carat of diamond has further been treated as explained and balance 138 carats of diamond of the value of ₹ 37,13,994/- was treated as unexplained. The silver weighing 39 kg has been treated as explained by the Ld. CIT(A) with respect to the status of the family and traditions. CIT(A) has sustained addition of ₹ 97,65,444/- (885000 3713994 5166450 surrendered by the assessee ) totaling to ₹ 97,65,444/-. A detailed finding has been recorded by the ld. CIT(A) for upholding the addition of ₹ 97,65,444/-. -The detailed findings so recorded by the ld. CIT(A) has not been controverted by the ld AR and the DR by bringing any positive material on record, accordingly, we confirm the order of the ld. CIT(A) for upholding the addition on account of jewellery. Addition of cash found during the course of search - not giving credit to the balances available in the books of accounts of the group - HELD THAT - The cash available in books are more as against cash found physically. This was so because certain payments were still to be accounted for in the books of accounts. Considering the submission of the assessee the Ld. CIT(A) deleted the addition. The Ld. CIT(A) has held that for small discrepancies in the books of accounts and overwriting the books cannot be rejected unless it is established that discrepancies in overwritings established manipulation and fraud. The Ld. CIT(A) has also correctly that as the cash stood accounted for in the books of accounts, section 69A could not be invoked. A.O. has not made effort to find out the book position of any concern. The same has not been discussed. The A.O. has also referred to report submitted under rule 9 to ITSC and has made the addition on the basis of such report. We observe that the A.O. was precluded in utilizing the report in making addition without furnishing a copy of the same to the assessee for defense and rebuttal. The action of the A.O. is contrary to the established principles of equity and justice - A.O. could not have utilized the report submitted under rule 9 without first furnishing a copy of report to the assessee. This was not done. The assessee does not know the contents of the report submitted under Rule 9 by the CIT to ITSC - No reason to interfere in the order for deleting the addition made by the A.O. u/s 69A of the Act. Undisclosed advances made by the assessee on the basis of seized documents - HELD THAT - We found that the amount of disclosure made by the assessee on account of income on sale of Arpit Nagar land amount of ₹ 2.43 crores was available with the assessee which was given as advance in the immediate succeeding year i.e. 2012-13. Thus, out of total addition of ₹ 5,68,50,000/- on account of addition for the advances in the A.Y. 2012-13, a set off of ₹ 2.43 crores are required to be allowed. Thus, we confirm the addition on account of loans and advances in the A.Y. 2012-13 to the extent of ₹ 3,25,50,000/- i.e. (5,68,50,000 - 2,43,00,000). We direct accordingly. Addition was made on the basis of other seized documents - HELD THAT - Income surrendered on the basis of above documents i.e. ₹ 49,24,000/- and ₹ 4,50,000/- in the A.Y. 2012-13 and ₹ 25.00 lacs in the A.Y. 2013-14 which works out to be ₹ 78,74,000/-, deserves to be set off out of addition of ₹ 2.55 crores made in the A.Y. 2013-14 on account of surrender for advances. In nutshell, the addition of ₹ 2.55 crores made in the A.Y. 2013-14 on account of surrender for advances is restricted to ₹ 1,76,26,000/- (2,55,00,000 - 78,74,000). We direct accordingly. Deleting the addition made on account of interest alleged to be earned which was found to be not actually earned by the assessee confirmed.

Summary

Issues Involved:
1. Legality of additions made under Section 153A without incriminating material.
2. Validity of additions based on statements recorded under duress.
3. Treatment of surrendered income and its bifurcation across assessment years.
4. Validity of additions based on seized documents and their correlation with actual transactions.
5. Treatment of unexplained jewelry and cash found during the search.
6. Legality of additions based on notional interest on alleged undisclosed advances.
7. Legality of additions based on reports not furnished to the assessee.

Issue-wise Detailed Analysis:

1. Legality of Additions under Section 153A:
The Tribunal emphasized that additions under Section 153A can only be made if incriminating material is found during the search. The Tribunal cited several case laws supporting this view, including the jurisdictional High Court's decision in Jai Steel India Vs. ACIT, which held that Section 153A proceedings are warranted only if incriminating material is found. The Tribunal concluded that since no incriminating material was found during the search, the additions made by the AO were not justified.

2. Validity of Additions Based on Statements Under Duress:
The assessee argued that the statements recorded under Section 132(4) were made under duress and pressure, which violated CBDT circulars. The Tribunal noted that such confessional statements, especially when made under pressure, have no evidentiary value. The Tribunal referred to several case laws where additions based solely on such statements were not upheld. Consequently, the Tribunal found that the additions based on these statements were not valid.

3. Treatment of Surrendered Income:
The Tribunal examined the bifurcation of the surrendered income across different assessment years. It was noted that the income surrendered during the search was distributed among various family members and across different years. The Tribunal found that the AO had not properly considered the bifurcation and set-offs claimed by the assessee. The Tribunal directed the AO to allow the set-offs and adjust the surrendered income accordingly.

4. Validity of Additions Based on Seized Documents:
The Tribunal scrutinized the additions made on the basis of seized documents. It was argued that these documents were "dumb" and did not contain sufficient details to link them to the assessee's business transactions. The Tribunal agreed with the assessee's contention, citing various case laws that held that additions cannot be made on the basis of uncorroborated loose sheets and papers. The Tribunal concluded that the AO had failed to establish a clear link between the seized documents and the assessee's business, making the additions unjustified.

5. Treatment of Unexplained Jewelry and Cash:
The Tribunal addressed the issue of unexplained jewelry and cash found during the search. The AO had made additions based on the total value of jewelry and cash found. However, the Tribunal noted that the jewelry declared in wealth tax returns and the CBDT's instructions on the treatment of jewelry during searches were not properly considered by the AO. The Tribunal directed that the jewelry disclosed in wealth tax returns should be treated as explained and allowed appropriate credits. Similarly, the Tribunal found that the cash found was less than the cash balance as per the books, and thus no addition was warranted.

6. Legality of Additions Based on Notional Interest:
The Tribunal examined the additions made on account of notional interest on alleged undisclosed advances. It was argued that there was no evidence of actual receipt of interest, and the additions were based purely on presumption. The Tribunal agreed with the assessee's contention, citing several case laws that held that interest cannot be taxed on a notional basis. The Tribunal concluded that the additions based on notional interest were not justified.

7. Additions Based on Reports Not Furnished to Assessee:
The Tribunal addressed the issue of additions made based on reports submitted to the Settlement Commission, which were not furnished to the assessee. It was argued that this violated the principles of natural justice. The Tribunal agreed, citing case laws that emphasized the need for transparency and the right of the assessee to inspect and rebut any material used against them. The Tribunal directed that such additions should be deleted.

Conclusion:
The Tribunal allowed the appeals of the assessee in part, confirming some additions while deleting others. The appeals of the revenue were dismissed. The Tribunal emphasized the need for incriminating material to justify additions under Section 153A and upheld the principles of natural justice and transparency in assessment proceedings.