2021 (1) TMI 322 - AT - Income Tax

Reopening of assessment u/s 147 or assessment u/s. 153C - unexplained cash credit u/s 68 - HELD THAT - CIT(A) has erred in overlooking the amendment brought in by Finance Act, 2015 in Sec.153C and carried away by the fact that the seized document must belong to the assessee for application of Sec.153C. However, as already noted the said words stood replaced by words belongs or belong to. The seized document, in the present case, undisputedly pertains to the assessee and the same form the very basis of making additions in the hands of the assessee. In view of the foregoing, we would hold that the provisions of Sec.153C were applicable to the facts of the case and Ld.AO was not justified in framing the assessment u/s 143(3) r.w.s. 147. The failure to do would vitiate the assessment proceedings. Hence, we are inclined to cancel the assessment framed u/s 143(3) r.w.s. 147. Accordingly, the impugned additions would not survive. Additions made u/s 68 which is also not applicable to the facts of the case since credit of sum in the books of accounts being maintained by the assessee is sine qua non to trigger the provisions of Sec.68. However, going by the factual matrix, it is quite clear that there was no credit entry in assessee s books of accounts rather it was the Ld. AO s allegation that the assessee received on-money on sale of flats. There was no sum found credited in assessee s books and therefore, the provisions of Sec.68 could not have been invoked against the assessee. None of the parties have admitted to have paid or received any on-money which is evident from cross-examination proceedings. The two buyers denied having paid any cash while purchasing the flat. The assessee denied having received the on-money. Shri Pankaj Goshar was not authorised to undertake financial transactions on behalf of the assessee. He also denied having undertaken any financial transactions with Manania family. Therefore, the whole basis of making addition is mere dumb document found at the premises of a third party, without there being any corroborative evidences to support the same. No much weightage could be attached to the said document in the absence of any cogent material supporting the entries therein. - Decided in favour of assessee.

Issues Involved:
1. Validity of reopening the case under Section 147 instead of Section 153C.
2. Validity of the proceedings under Section 147 based on seized WhatsApp messages.
3. Validity of the reasons for initiating reassessment proceedings.
4. Evidentiary value of seized documents found in a third party's mobile phone.
5. Partial confirmation of additions based on seized documents.
6. Timing of taxation of alleged on-money received.
7. Rejection of the assessee's books of accounts under Section 145(3).
8. Estimation of net profit at 15% of alleged on-money receipts.

Detailed Analysis:

1. Validity of Reopening the Case Under Section 147 Instead of Section 153C:
The assessee contested the reopening of the case under Section 147, arguing that the assessment should have been framed under Section 153C, given that the documents seized pertained to the assessee. The Tribunal noted that the search took place on 10/09/2015, and the amended provisions of Section 153C, effective from 01/06/2015, were applicable. These provisions override other sections, including Sections 147 and 148, and mandate that the assessment should be framed under Section 153C when documents pertain to a person other than the one searched. The Tribunal held that the failure to follow Section 153C vitiated the assessment proceedings, thereby quashing the assessment framed under Section 143(3) r.w.s. 147.

2. Validity of the Proceedings Under Section 147 Based on Seized WhatsApp Messages:
The assessee argued that the proceedings under Section 147 were invalid as they were based on WhatsApp messages seized from a third party. The Tribunal observed that the seized documents, including WhatsApp messages, pertained to the assessee and formed the basis of the additions. However, since the documents were found in a third party's possession, the assessment should have been under Section 153C, not Section 147. This procedural lapse rendered the assessment invalid.

3. Validity of the Reasons for Initiating Reassessment Proceedings:
The Tribunal examined whether the Assessing Officer (AO) had valid reasons to initiate reassessment proceedings. The AO's reasons were based on the seized documents indicating unaccounted cash transactions. However, the Tribunal found that these documents were not sufficient to justify reopening under Section 147 when the correct procedure under Section 153C was not followed. Thus, the reassessment proceedings were invalid.

4. Evidentiary Value of Seized Documents Found in a Third Party's Mobile Phone:
The Tribunal scrutinized the evidentiary value of the documents found on a third party's mobile phone. The documents indicated unaccounted cash transactions but were not corroborated by any other evidence. The Tribunal noted that none of the parties involved admitted to the transactions during cross-examination, and the documents alone, without corroborative evidence, were insufficient to substantiate the additions.

5. Partial Confirmation of Additions Based on Seized Documents:
The CIT(A) had partly confirmed the additions based on the seized documents. The Tribunal, however, held that these documents were mere "dumb documents" without corroborative evidence. Therefore, the partial confirmation of additions was not justified, and the Tribunal quashed the additions.

6. Timing of Taxation of Alleged On-Money Received:
The assessee argued that the profit on alleged on-money should not have been taxed in the year of receipt, as they followed the project completion method of accounting. The Tribunal did not delve deeply into this issue, given that the assessment itself was quashed due to procedural lapses.

7. Rejection of the Assessee's Books of Accounts Under Section 145(3):
The CIT(A) had rejected the assessee's books of accounts and estimated income under Section 144. The Tribunal found this rejection unjustified, as the basis for rejection was the seized documents, which were not corroborated by any other evidence. Consequently, the rejection of books was invalid.

8. Estimation of Net Profit at 15% of Alleged On-Money Receipts:
The CIT(A) had estimated the net profit at 15% of the alleged on-money receipts. The Tribunal quashed this estimation, noting that the entire basis for the estimation was the uncorroborated seized documents. Without valid evidence, such estimation was unwarranted.

Conclusion:
The Tribunal quashed the assessment orders for all the years under consideration, holding that the assessments should have been framed under Section 153C and not Section 147. Consequently, the additions made by the AO were invalid. The assessee's appeals were partly allowed, and the revenue's appeals were dismissed.

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