2021 (10) TMI 1249 - AT - Income Tax

Assessment u/s 153A - addition of income from house property - Whether AO is not supposed to make assessment on the basis of estimation or on the basis of appreciation of material other than the seized material in respect of completed/unabated assessments in respect of years prior to the searched year? - HELD THAT - In view of the decision of SINHGAD TECHNICAL EDUCATION SOCIETY 2017 (8) TMI 1298 - SUPREME COURT wherein it has been held that for framing assessment u/s 153C of the Act there must be an incriminating material relevant to that assessment year. For AY 2009-10 2010-11 AND 2011-12 2012-13 the assessment framed u/s 153C of the Act in this case is without jurisdiction and therefore the same is bad in law. Further no incriminating material was found for the assessment years AY 2009-10 and AY 2010-11. Therefore as per the decision of the Hon ble Supreme Court the notices issued u/s 153C of the Act in these appeals as well as consequent assessments framed u/s 153C of the Act are not sustainable in the eyes of law and the same are accordingly quashed. Assessment Year 2013-14 - A diary containing the rental income for the whole year was found during the search and seizure operation. The rent from nine rooms was noted in the aforesaid diary - The income recorded in our view is the full income of the year from the aforesaid property. Moreover it is not necessary that all the rooms of the building will be occupied on all days during the entire year. Therefore as per the incriminating material the rental income for the year from the property in question was at Rs.39, 12, 500/-. The assessee having one third share in the said property the rental income from the said property would be Rs.13, 04, 166/- upon which the assessee would be entitled to deduction at the rate of 30% u/s 24(1) of the Act. However the assessee for the AY 2013-14 has already offered an income of Rs.28, 07, 259/- which is more than the income that can be arrived at from the incriminating documents. We find force in the contention of the Ld CIT(A). AR that the assessee had offered the income in lumpsum of Rs. 1, 80, 00000/- which was bifurcated on approximation basis and that the excess income offered in an year may be adjusted against the year in which less income is found to have been offered. The additions made by the AO in respect of the aforesaid assessment year are set aside and it is directed that the taxes paid over and above the income of Rs. 1304166/- would be adjusted against other years for which the less taxes have been found to be offered. Assessment Year 2014-15 - After granting deduction u/s 24(1) of the Act at the rate of 30% the total income of the assessee during the year comes out at Rs.55, 68, 161/- whereas the assessee has offered the income of the year under consideration at Rs.31, 44, 095/-. Therefore the addition to the extent of Rs.24, 22, 066/- is sustained for the assessment year under consideration. However the assessee will be entitled to the adjustment of the taxes paid for the assessment years AY 2009-10 AY 2010-11 AY 2011-12 AY 2012-13 and of excess taxes paid for AY 2013-14 against the taxes due for the AY 2014-15 in view of the assessment quashed for A.Y. 2009-10 to A.Y. 2012-13 and additions sustained for A.Y. 13-14 as ordered above. Assessment Year 2015-16 - As in this case admittedly no notice u/s 153C of the Act was issued to the assessee for the assessment year under consideration. Even otherwise the return of income for the assessment year under consideration was filed by the assessee on 07.02.2016 i.e. within the standard period of filing of the return of income and as per the proviso to Section 143(2) of the Act no notice could have been issued after the expiry of six months from the end of the financial year in which the return of income is furnished which expires on 30.09.2016. As the assessment framed was time barred. Moreover no incriminating material was found during the year under consideration. Therefore even otherwise the assessment framed u/s 153C of the Act would be without jurisdiction. Under these circumstances the return of income has to be accepted for the year under consideration. The additions made by the AO for the year under consideration are ordered to be deleted. Since the facts of the cases as well as the ownership rights in the property are same in case of both the assessees therefore our findings arrived herein would mutatis mutandis apply for the respective appeals for different years of both the assessees

Summary

Issues Involved:
1. Validity of initiation of proceedings under Section 153C of the Income Tax Act, 1961.
2. Jurisdiction of the Assessing Officer (AO) in making additions beyond incriminating materials found during the search.
3. Validity of assessment orders for various assessment years (AYs) from 2009-10 to 2015-16.
4. Estimation of rental income and its legality.

Detailed Analysis:

1. Validity of Initiation of Proceedings under Section 153C:
The primary issue raised was whether the initiation of proceedings under Section 153C of the Income Tax Act was erroneous and bad in law. The search and seizure operation was conducted on 03.04.2014, and the satisfaction note was written by the AO on 03.10.2016. As per the decision of the Delhi High Court in CIT Vs RRJ Securities Ltd., the date of recording satisfaction under Section 153C is crucial. The AO must record satisfaction that seized documents belong to a person other than the searched person. The relevant six assessment years, as per the satisfaction note dated 03.10.2016, would be AY 2011-12 to AY 2016-17. Therefore, assessments for AY 2009-10 and AY 2010-11 were beyond jurisdiction and null and void.

2. Jurisdiction of AO in Making Additions Beyond Incriminating Materials:
The assessee argued that the AO had traveled beyond his jurisdiction by estimating rental income without incriminating materials found during the search. The Hon’ble Supreme Court in CIT vs. Singhad Technical Education Society held that for framing assessment under Section 153C, there must be incriminating material relevant to that assessment year. The Tribunal found that no incriminating material was found for AYs 2009-10, 2010-11, 2011-12, and 2012-13. Hence, the assessments for these years were quashed.

3. Validity of Assessment Orders for Various AYs:
- AY 2009-10 & 2010-11: The assessments were found to be beyond jurisdiction as they were not within the six years preceding the date of recording satisfaction. No incriminating material was found for these years, making the assessments null and void.
- AY 2011-12 & 2012-13: No incriminating material was found, and the additions were based on estimates. The assessments were quashed based on the Supreme Court's decision in Singhad Technical Education Society.
- AY 2013-14: Incriminating documents were found only for one property. The AO made additions based on estimated income from other properties without any incriminating material. The Tribunal directed adjustments of taxes paid for excess income declared in other years.
- AY 2014-15: Incriminating material was found for four properties. The Tribunal sustained an addition of Rs. 24,22,066/- after granting deductions and directed adjustments of taxes paid for earlier years.
- AY 2015-16: The assessment was time-barred as no notice under Section 153C was issued. The Tribunal found the assessment without jurisdiction and deleted the additions.

4. Estimation of Rental Income and Its Legality:
The AO's method of estimating rental income by extrapolation was challenged. The Tribunal found the AO's approach arbitrary and without legal support, especially when no incriminating material was found. The Tribunal emphasized that assessments under Section 153C must be based on incriminating materials and not on arbitrary estimates.

Conclusion:
The appeals for AYs 2009-10 to 2012-13 and 2015-16 were allowed, quashing the assessments as they were beyond jurisdiction and not based on incriminating materials. For AY 2013-14, the Tribunal allowed adjustments of taxes paid for excess income declared in other years. For AY 2014-15, partial additions were sustained with directions for tax adjustments. The Tribunal's order was pronounced on 26.10.2021.