2022 (11) TMI 227 - AT - Income Tax

Assessment u/s 153A - Addition being additional cash consideration for acquiring shares of KMPL and GBPL - HELD THAT - Conclusive observation of the AO itself shows that the entire edifice of making assessment is nothing but assumptions, surmises and conjectures. The Bench asked a very simple question to the ld. DR that in whose hands substantive addition has been made and in whose hands protective addition has been made. DR could not answer to this simple question and we do not understand from the perusal of the record of the assessee and considering the assessment in the case of Peakwood Realty Pvt Ltd, though one thing is certain that same addition in respect of similar transaction has been made in the hands of the two assessees. A perusal of the assessment order in the case of Peakwood Realty Pvt Ltd shows that there is a reference of some document found which is internal page 10 of the assessment order in the case of Peakwood Realty Pvt Ltd. This document shows that some additional consideration has been paid - This document was found from the laptop of one Smt. Bina Shah. This document was neither found from the premises of the assessee nor from the possession of the assessee and is sole basis of making entire payment. Since this incriminating material was neither found from the premises of the assessee nor connected with the assessee in any manner, therefore, the ratio laid down in the case of Kabul Chawla 2015 (9) TMI 80 - DELHI HIGH COURT and Meeta Gutgutia 2017 (5) TMI 1224 - DELHI HIGH COURT squarely apply. There is no adverse inference drawn in respect of sellers of shares i.e. KMPL and GBPL though the impugned addition has been made on the basis of pure surmises and conjectures nothing has been done in the hands of the sellers of the shares. As mentioned elsewhere, shareholders of GBPL and KMPL are NRI and, therefore, Peakwood Realty Pvt Ltd had to take No Objection Certificate for transfer of shares from RBI which was duly obtained by it. AO has proceeded with a preconceived mind without realizing that the documents which he is referring to is for making addition neither has names of the sellers of the shares nor name of the assessee. Therefore, following the ratio laiddown by the Hon'ble Delhi High Court supra , this addition deserves to be deleted. Even on merits of the case, the addition cannot be sustained as the Assessing Officer has made the addition u/s 69 of the Act which has been modified by the ld. CIT(A) and sustained the addition u/s 69 - A revisit to the facts of the case would clear the quarrel. Addition made by the Assessing Officer u/s 69 is purely on assumption and without any basis. Presuming that the assessee has paid cash for the purchase of shares as these sellers of shares were holding 430 acres of prime land in Village Mangar, Faridabad Gurgaon border. Addition though modified by CIT(A) u/s 69B but has been confirmed on the presumption, surmises and conjectures - Firstly, investment was made by Peakwood Realty Pvt Ltd and not by the assessee and secondly, the AO has made addition in the hands Peakwood Realty Pvt Ltd, then there should not be any reason for making same addition in the hands of the assessee when the assessee is not party to the transaction. Considering the entire factual matrix from all possible angles, addition made in the hands of the assessee on all counts deserves to be deleted. - Decided in favour of assessee.

Issues Involved:

1. Validity of notice and assessment order under Section 153A of the Income Tax Act.
2. Jurisdictional error due to the absence of incriminating material.
3. Unexplained investment addition under Section 69 of the Income Tax Act.
4. Violation of principles of natural justice.
5. Initiation of proceedings based on documents seized from third-party premises.
6. Levy of interest under Sections 234A and 234B of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Validity of Notice and Assessment Order under Section 153A:

The assessee argued that the notice issued and the assessment order passed under Section 153A were invalid due to the absence of a search on the appellant. The Tribunal noted that the search and seizure operation was conducted at the premises of M3M Group, which included the partners of the assessee firm, but not the assessee itself. The Tribunal referenced the Delhi High Court's decision in Sarvamangalam Builders and Developers [P] Ltd, which held that proceedings under Section 153A were invalid if the premises searched were not of the assessee. The Tribunal concluded that no search operation was conducted on the assessee's premises, making the notice and assessment order under Section 153A invalid.

2. Jurisdictional Error Due to Absence of Incriminating Material:

The Tribunal addressed the assessee's claim that the addition was made without any incriminating material found during the search. The Tribunal referenced the Delhi High Court's rulings in Kabul Chawla and Meeta Gutgutia, which state that additions under Section 153A should be based on incriminating material found during the search. The Tribunal found that the document used to make the addition was found on the laptop of a third party and not from the assessee's premises, thus making the addition invalid.

3. Unexplained Investment Addition under Section 69:

The Assessing Officer added Rs. 62.89 crores as unexplained investment under Section 69, alleging that the assessee paid this amount in cash for acquiring shares. The Tribunal noted that the transactions were duly recorded in the books of accounts and that the addition was based on assumptions and conjectures. The Tribunal also pointed out that the same addition was made in the hands of Peakwood Realty Pvt Ltd, creating ambiguity about whether the addition was substantive or protective. The Tribunal concluded that the addition under Section 69 was invalid as it was based on assumptions without any concrete evidence.

4. Violation of Principles of Natural Justice:

The assessee contended that the assessment order relied on statements from third parties without providing an opportunity for cross-examination, violating the principles of natural justice. The Tribunal did not explicitly address this issue in the detailed analysis but implied that the reliance on third-party statements without cross-examination contributed to the overall invalidity of the assessment order.

5. Initiation of Proceedings Based on Documents Seized from Third-Party Premises:

The Tribunal noted that the document used to make the addition was found from the laptop of a third party, not from the assessee's premises. The Tribunal referenced the Delhi High Court's decision in PCIT vs. Anand Kumar Jain (HUF), which held that proceedings under Section 153A could not be initiated based on documents seized from third-party premises. The Tribunal concluded that the initiation of proceedings based on third-party documents was invalid.

6. Levy of Interest under Sections 234A and 234B:

The assessee challenged the levy of interest under Sections 234A and 234B. The Tribunal did not provide a detailed analysis of this issue, but the overall invalidation of the assessment order implies that the associated interest levies would also be invalid.

Conclusion:

The Tribunal allowed the appeal, holding that the notice and assessment order under Section 153A were invalid due to the absence of a search on the assessee's premises and the lack of incriminating material. The addition under Section 69 was also invalidated as it was based on assumptions and conjectures. The Tribunal directed the Assessing Officer to delete the impugned addition.

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