2021 (3) TMI 1113 - AT - Income Tax

Rectification of mistake - Assessment u/s 153A - whether no incriminating material was found as these assessments stood completed u/s. 143(3)/143(1) and were not pending on the date of search? - HELD THAT - It is a settled proposition as laid down in the case of CIT V/s Kabul Chawla 2015 (9) TMI 80 - DELHI HIGH COURT that additions for the concluded and non abated assessment can be made only if there is a incriminating material found during the course of search for those years. Before us Ld. Counsel for the assessee has demonstrated through the documents placed in the paper book that Assessment Year 2003-04 to Assessment Year 2006-07 with respect to all the assessee(s) mentioned in the instant Miscellaneous Application are concluded and non abated assessments as they have either to be assessed u/s 143(3) of the Act or the time limit for issuance of notice u/s 143(2) of the Act had expired and there was no incriminating material found during the course of search with respect to Assessment Year 2003-04 to Assessment Year 2006-07 and therefore the additions made by the Ld. A.O for all these years in respect of the assessee(s) mentioned in the instant Miscellaneous Application deserves to be deleted. Looking to the peculiarity of the facts and in the interest of justice, it will be fair for both the parties, if this issue is set aside to the file of Ld. A.O for limited purpose of examining the veracity of the submissions made by the Ld. Counsel for the assessee. We accordingly order so and direct the Ld. A.O that after giving necessary and reasonable opportunity of being heard to the assessee(s), should examine, firstly as to whether any incriminating material was found during the course of search for Assessment Year 2003-04 to Assessment Year 2006-07 having any nexus with the additions made and secondly whether the Assessment Year 2003-04 to Assessment Year 2006-07 were falling under the category of concluded and non abated assessments. In case the Ld. A.O finds that Assessment Year 2003-04 to Assessment Year 2006-07 were concluded and non abated assessments and there was no incriminating material found during the course of search pertaining to these Assessment Years, in view of settled judicial precedents should not make any addition for the assessee(s) mentioned herein above and in the alternate can take necessary action as per the provisions of law. In the result first common issue raised by above captioned assessee(s) present before us, as to whether No addition ought to have been made in respect those years where no incriminating material was found as these assessments stood completed u/s 143(3)/143(1) and were not pending on the date of search is hereby allowed for statistical purposes. Absence of corroboration by way of independent evidence, no addition ought to have been made in respect of rough notings in the diary found in search - We find that as regards diary found relating to AY 2004-05 from the possession of the assessee Arun Sahlot, the assessee has been explaining since inception that jottings in the impugned dairy had nothing to do with actual financial transactions and it merely contained various business proposals , reminders, appointments, planning, business targets, projections etc. He filed an affidavit too before AO on oath solemnly stating that he has not made any such payments as presumed and alleged by the AO. Assessee also issued letters u/s. 131 of the Act to call the respective parties to verify the facts but the same was not done. In the statement recorded u/s. 132(4) of the Act also assessee nowhere accepted to have made any such payments alleged to have been recorded in the seized diary and he only averred that the diary contains merely work list. Despite categorical denial of any such payments by the assessee, Arun Sahlot, he was neither examined as author of the diary nor was he cross-examined as deponent of the affidavit. We take note of this very significant and important fact oozing out from AO order that the AO claims to have identified so -called recipients of the alleged payments contained in the diary by collecting their addresses and even phone numbers as narrated in his assessment order at Page 55 and 61-65 but he has neither examined any of them nor even tried to take pain to corroborate, much less corroborated, the same by way of independent evidence. Even one employee, Asim Ansari, was simultaneously searched and was simultaneously assessed by same AO and addition on account of three alleged payments to him were made in the hands of assessee - AO has also identified Asim Ansari to be the same person who was assessed by him simultaneously. But even in case of Asim Ansari also, neither he was examined by AO nor any corresponding income in the hands of the Asim Ansari, as alleged recipient, was ever made. We are of the considered view that the issue raised in Ground No.5 in the case of Arun Sahlot for Assessment Year 2004-05 needs to be set aside to the file of Ld. A.O for afresh examination. On perusal it seems that the additions are based merely on rough jottings and rough diary but still in the interest of justice and fair play we are of the view that the issue needs to be examined afresh by Ld. A.O after providing reasonable opportunity of being heard to the assessee and the Ld. A.O is also directed that in view of the settled judicial precedents and discussions herein above the addition can be made on the basis of the seized diary only if proper nexus is established and same is corroborated with relevant material. If the Ld. A.O is not able to establish any such nexus between the notings in the seized diary and the actual transaction having taken place then no addition deserves to be made and if found otherwise Ld. A.O can make addition as permissible under the law.

Issues Involved:
1. Timeliness of filing Miscellaneous Applications (MAs).
2. Non-adjudication of specific legal grounds by the Tribunal.
3. Additions made in respect of years without incriminating material.
4. Additions based on rough notings in a diary without corroboration by independent evidence.

Detailed Analysis:

1. Timeliness of Filing Miscellaneous Applications (MAs):
The assessee(s) filed Miscellaneous Applications under section 254(2) of the Income Tax Act, 1961, seeking rectification of apparent mistakes in the Tribunal’s orders dated 22.03.2013, 16.04.2013, and 30.04.2013. The learned counsel for the assessee argued that these applications were filed within the stipulated time of four years, relying on the judgment of the Hon’ble MP High Court in the case of Distt. Central Co-operative Bank Ltd. V. UOI (2017) 86 taxmann.com 176 (MP). The Tribunal agreed with this proposition and admitted the MAs for adjudication.

2. Non-Adjudication of Specific Legal Grounds by the Tribunal:
The assessee(s) contended that two common issues raised in their grounds of appeal were not adjudicated by the Tribunal. These issues were:
- No addition should be made for years where no incriminating material was found as the assessments stood completed under sections 143(3)/143(1) and were not pending on the date of search.
- No addition should be made based on rough notings in a diary found during the search without corroboration by independent evidence.

The Tribunal acknowledged that these issues remained undecided and warranted rectification under section 254(2).

3. Additions Made in Respect of Years Without Incriminating Material:
The Tribunal examined the first issue, which questioned the additions made for assessment years 2003-04 to 2006-07, where no incriminating material was found during the search. The Tribunal noted that the original assessments for these years were completed and not pending on the date of the search. The Tribunal referred to the Special Bench Decision in All Cargo Global vs. DCIT and the case of Gurinder Singh Bawa, which held that additions for completed assessments should not be made in the absence of incriminating material. The Tribunal directed the Assessing Officer (AO) to examine whether any incriminating material was found during the search and whether the assessments for these years were concluded and non-abated. If no incriminating material was found, the AO should not make any additions.

4. Additions Based on Rough Notings in a Diary Without Corroboration by Independent Evidence:
The second issue involved additions made based on rough notings in a diary found during the search. The assessee argued that these notings were merely business proposals and not actual financial transactions, and no independent corroborative material was provided by the AO. The Tribunal observed that the AO did not examine or cross-examine the assessee or the alleged recipients of the payments noted in the diary. The Tribunal emphasized that additions cannot be made based on rough jottings without corroborative evidence. The Tribunal set aside the issue to the AO for fresh examination, directing that additions should only be made if a proper nexus is established and corroborated with relevant material.

Conclusion:
The Tribunal allowed the Miscellaneous Applications to the extent that the two common issues remained to be adjudicated. The Tribunal directed the AO to re-examine the issues of additions for assessment years without incriminating material and additions based on rough notings in the diary, providing reasonable opportunity of being heard to the assessee(s). The order was pronounced in the open Court on 25.03.2021.

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