2022 (4) TMI 149 - AT - Income Tax

Validity of search by issue of notice u/s. 153A - HELD THAT - This issue has been settled by the decision of the Special Bench in the case of Proman Ltd. v. DCIT, 2005 (6) TMI 224 - ITAT DELHI wherein it was held that Tribunal cannot adjudicate upon issue relating to validity of search conducted under section 132 while disposing of appeal against block assessment. The Hon'ble Supreme Court in the case of N.K. Jewellers 2017 (9) TMI 1299 - SUPREME COURT held that in view of the amendment made in section 132A by Finance Act, 2017, the reason to believe or reason to suspect as the case may be, shall not be disclosed to any person or any Authority or Appellate Tribunal as recorded by income Tax Authority u/s. 132 or section 132A. We, therefore, cannot go into that question at all. In the case of Prathibha Jewellery House 2017 (11) TMI 1744 - KARNATAKA HIGH COURT dismissed the writ petitions and held that even the law has been amended by insertion of the aforesaid Explanation by Parliament in Section 132 of the Act by the Finance Act, 2017 with retrospective effect from 1.4.1962. The Court held that the Explanation also prohibits the Appellate Authorities to go into the reasons recorded by the concerned Income Tax Authority for directing Search against the assessee or tax payer - Being so, the assessee cannot question the validity of search before this Tribunal. Accordingly these grounds are dismissed. Unexplained cash payments - HELD THAT - In the present case, there is a valid MoU wherein payment of 5 crores are shown; 4 crores was in cash and 1 crore by way of cheque. The amount of payment of 1 crore by cheque was recorded in books of account and the other part of payment of 4 crores by cash was not recorded in the books of account. When 1 crore cheque payment has been accepted by assessee, why not the other 4 crores of cash payment is not true. The inference by the lower authorities was that both cash and cheque payments were true and on that basis the source of 4 crores has not been explained by assessee and it is unrecorded payment in the books of account and payment of cheque of 1 crore has been paid by assessee and fully recorded, but payment of another 4 crores has not been denied by assessee and also not shown to be source of payment of 4 crores. As such, it is justified to draw inference that assessee made payment of 4 crores to the concerned parties as mentioned in the MoU. The inference drawn by the lower authorities to this extent is justified. Section 292C grants permission to lower authorities to draw such inference. We do not find any infirmity in that inference drawn by the lower authorities. MoU was formed with the assessee and burden is cast upon assessee to show that amount of 4 crores has been paid by AOP who joined together vide MoU to make payment of 4 crores. But there is no iota of evidence brought on record by assessee to show that AOP existed by producing relevant records, PAN, bank account or any other material to suggest that there is existence of AOP. In such circumstances, the lower authorities are justified to infer that payment was made exclusively by the assessee itself. The addition was solely based on MoU found during the course of search action and it is not based on statement from various persons. Being so, there is no question of providing any cross-examination to the assessee in this case - we are of the opinion that lower authorities are justified in bringing to tax an amount of 4 crores paid by assessee to Kiran Kumar Jain and Mahendra Kumar Jain. This ground of the assessee is dismissed. Unexplained cash credit - contention of the ld. AR is that the alleged cash deposits were not made in the account assessee, as such it cannot be taxed in the hands of assessee - HELD THAT - AO in his remand report stated that assessee has not furnished all his bank accounts tallying with closing balance as on 31.3.2010 at ₹ 11,44,112. However, the details of various bank accounts were not furnished to AO, as such it is not possible to verify the balance account wise. It is also true that copy of the remand report is not furnished to the assessee. In view of this, we are of the opinion that it is appropriate to remit the entire issue in dispute to the file of AO with a direction to AO to furnish copy of remand report to the assessee and direct the assessee to reconcile the closing balance and furnish details of various accounts with bank. Physical cash found during the course of search action - HELD THAT - The statement recorded u/s. 132(4) has great evidentiary value and cannot be disregarded in a summary manner by simply observing that assessee has retracted the same. Retraction is to be made within reasonable time and immediately after such statement has been recorded either by filing a complaint to superior authority or otherwise brought to the notice of higher officials by duly sworn affidavit or statement supporting it. Nothing has been done by before the lower authorities. AR relied on various judgments to say that statement u/s. 132(4) has no evidentiary value. All the judgments relied by the assessee were delivered under different set of facts which cannot be applied to the present case. In the present case, the assessee other than taking a different plea at different stage, he has not brought any material on record to suggest otherwise that physical cash found during the course of search was not belonging to the assessee. There is also no evidence to suggest that cash withdrawn from ETLL was unused and kept with the assessee idle though repeatedly withdrawals were made one after the other. As per the provisions of section 292C, presumption is that cash found during the course of search belongs to assessee and burden is on the assessee to prove otherwise. Being so, we do not find any infirmity in the lower authorities bringing the cash found during the search to tax in the hands of assessee as unexplained cash. Therefore this ground of the assessee is rejected. Unexplained jewellery - HELD THAT - Lower authorities considering the jewellery found during the course of search action at 1296.560 gms. Valued at ₹ 36,03,398 as on the date of search and the difference in value is only on account of inflation in the cost of jewellery and if the historical cost is applied, there is no undisclosed jewellery in the hands of assessee and there cannot be any addition. We find force in the argument of the assessee. The assessee has already disclosed 1441 gms. in its balance sheet as on 31.3.2010 valuing at ₹ 16,79,475, being so, jewellery cannot be treated as unexplained in the hands of assessee. Accordingly, the addition on this count is deleted.

Summary

Issues Involved:
1. Validity of search proceedings and assumption of jurisdiction under section 153A.
2. Addition of ?4,00,00,000 as unexplained cash payments.
3. Addition of ?30,00,000 as unexplained cash credits.
4. Addition of ?16,58,250 as unexplained cash.
5. Addition of ?36,03,938 as unexplained jewelry.
6. Levy of interest under sections 234A, 234B, and 234C.

Issue-wise Detailed Analysis:

1. Validity of Search Proceedings and Assumption of Jurisdiction under Section 153A:
The appellant challenged the validity of the search proceedings and the assumption of jurisdiction under section 153A, arguing that the mandatory requirements were not complied with, and the reasons for conducting the search were not recorded or provided. The Tribunal noted that the issue of the validity of search cannot be adjudicated by the Tribunal as per the decision in Proman Ltd. v. DCIT and the Supreme Court's ruling in N.K. Jewellers Vs. CIT. It was held that the Tribunal cannot question the validity of search proceedings, and the reasons for such search are not required to be disclosed as per the amendment in Section 132 by the Finance Act, 2017. Therefore, the appellant's ground on questioning the validity of the search was rejected.

2. Addition of ?4,00,00,000 as Unexplained Cash Payments:
During the search, a Memorandum of Understanding (MoU) indicating a cash payment of ?4 crores was found. The appellant contended that the MoU was canceled and that the payment was not made. However, the Tribunal upheld the addition, noting that the MoU was signed by the appellant and corroborated by statements from other involved parties. The Tribunal emphasized the presumption under Section 292C that the contents of documents found during the search are true. The appellant's argument that the payment was made by an Association of Persons (AOP) was dismissed due to a lack of evidence proving the existence of such an AOP. The Tribunal concluded that the addition of ?4 crores as unexplained cash payments was justified.

3. Addition of ?30,00,000 as Unexplained Cash Credits:
The appellant contested the addition of ?30 lakhs, arguing that no such deposit was made in his bank account. The Tribunal noted that the remand report confirmed no such deposit in the appellant's known bank account but indicated a possible error in the AIR information. The Tribunal remanded the issue back to the Assessing Officer (AO) for verification and reconciliation of the bank account details, directing the AO to furnish the remand report to the appellant and allow for comments.

4. Addition of ?16,58,250 as Unexplained Cash:
During the search, cash amounting to ?16,58,250 was found. The appellant initially stated that the cash belonged to his father-in-law but later claimed it was from drawings made from a firm where he was a partner. The Tribunal upheld the addition, noting that the appellant failed to provide evidence supporting the source of the cash and that the statement recorded under Section 132(4) has significant evidentiary value. The Tribunal dismissed the appellant's retraction of the statement as an afterthought and concluded that the addition was justified.

5. Addition of ?36,03,938 as Unexplained Jewelry:
Jewelry worth ?36,03,938 was found during the search. The appellant argued that the jewelry was already disclosed in his balance sheet at historical cost. The Tribunal found merit in this argument, noting that the appellant had disclosed the jewelry in his balance sheet and that the difference in value was due to inflation. The Tribunal deleted the addition, concluding that the jewelry could not be treated as unexplained.

6. Levy of Interest under Sections 234A, 234B, and 234C:
The Tribunal noted that the levy of interest under sections 234A, 234B, and 234C is consequential and mandatory in nature.

Conclusion:
Both appeals by the appellant were partly allowed. The additions of ?4,00,00,000 as unexplained cash payments and ?16,58,250 as unexplained cash were upheld, while the addition of ?36,03,938 as unexplained jewelry was deleted. The issue of ?30,00,000 as unexplained cash credits was remanded back to the AO for further verification. The levy of interest under sections 234A, 234B, and 234C was noted as consequential.