2022 (11) TMI 464 - AT - Income Tax

Revision u/s 263 by CIT - addition made in the hands of assessee u/s 153C - Whether incriminating material was found and seized during the course of search operation conducted in the case of one of the partners of assessee firm by name, Ajaz Farooqui and his related business concerns? - non -availing of IDS - HELD THAT - Revenue has failed to point out any incriminating document found during the course of search pertaining to / belonging to the assessee firm relevant to the assessment years under consideration from the records of Assessing Officer as well as from the record of the Tribunal which formed basis of making the addition in the hands of assessee. The law is fairly settled that no addition can be made in the hands of assessee u/s 153C in the absence of any incriminating material pertaining to the assessee firm for the years under consideration. Further, the assessee in this case had filed return of income which was duly noticed by the Assessing Officer at the time of recording satisfaction, however, despite knowing the return of income and alleged non-disclosure of the bank account in the return of income, the Assessing Officer has not resorted to proceed u/s 147 / 148 of the Act. In the present case, as mentioned above, a search was carried out in the premises of Ajaz Farooqui, one of the partners of the assessee firm, and his related business concerns and some incriminating material / documents were found and seized. However, the documents so found do not pertain to the years under consideration and therefore, cannot form the basis for making an addition in the hands of assessee under section 153C. From the perusal of the assessment order and the seized material, it is clear that no addition has been made by the Assessing Officer based on the incriminating material. Therefore, the plea of the Revenue that the additions were made on the basis of the seized material is without any basis. Further, we may point out that the Assessing Officer had also examined the return of income filed by the assessee in response to the notice which was duly considered by him and the income already been declared was considered while computing the total income for Rs. 2,25,65,581/-. Thus, the additions made by the AO were not based on the incriminating material and hence, the action on the part of the CIT(A) in our opinion is in accordance with the law. As in view of the support drawn from the decision in the case of M/s. G.V.K. Enterprises 2021 (12) TMI 1394 - ITAT HYDERABAD we dismiss the appeals filed by the Revenue. Though, DR had sought to distinguish the decision on the pretext that the assessee has not gone to the Income Declaration Scheme, 2016. We have already mentioned that once the assessee had filed the return of income and the same was also considered by the AO at the time of assessment, therefore, non- availing of IDS will not be a reason to distinguish the case. Further, we do not find any material on record to demonstrate that the order of Tribunal in the case of M/s. G.V.K. Enterprises 2021 (12) TMI 1394 - ITAT HYDERABAD has been set aside / stayed / overruled by any higher judicial forum. No other ground has been adjudicated by us, as the appeals of the assessee are liable to be dismissed on the sole ground adjudicated by us while deciding Revenue appeal.

Issues Involved:
1. Validity of proceedings initiated under Section 153C of the Income Tax Act.
2. Admissibility of incriminating materials found during the search.
3. Legality of additions made under Section 68 of the Income Tax Act.
4. Validity of penalty proceedings initiated under Section 271(1)(c).
5. Charging of interest under Sections 234A, 234B, and 234C.

Detailed Analysis:

1. Validity of Proceedings Initiated under Section 153C:
The primary issue revolved around whether the proceedings initiated under Section 153C were valid. The assessee argued that the materials relied upon by the Assessing Officer (AO) did not pertain to the relevant assessment years and thus could not form the basis for initiating proceedings under Section 153C. The Commissioner of Income Tax (Appeals) [CIT(A)] agreed with the assessee, noting that the materials (cheque books, pen drives, and bank statements) did not constitute "incriminating seized material" for the assessment year 2011-12. The Income Tax Appellate Tribunal (ITAT) upheld this view, stating that the AO's satisfaction was not based on relevant incriminating material and thus quashed the proceedings under Section 153C.

2. Admissibility of Incriminating Materials:
The Revenue contended that the materials found during the search, including cheque books and pen drives, were incriminating. However, the CIT(A) and ITAT found that these materials either did not pertain to the assessment years in question or were already disclosed in the assessee's books of accounts and returns. The ITAT noted that the AO had not demonstrated how these materials were incriminating for the relevant assessment years, thus supporting the CIT(A)'s decision.

3. Legality of Additions Made under Section 68:
The AO had made additions of Rs. 2,00,09,000 as unexplained cash credits under Section 68. The CIT(A) quashed these additions, stating that they were not based on any incriminating material found during the search. The ITAT upheld this decision, emphasizing that additions under Section 153C must be based on incriminating material related to the relevant assessment years, which was not the case here.

4. Validity of Penalty Proceedings under Section 271(1)(c):
The CIT(A) and ITAT did not specifically address the penalty proceedings under Section 271(1)(c) in detail, as the primary issue of the validity of the Section 153C proceedings was decided in favor of the assessee. Since the additions were quashed, the penalty proceedings based on those additions were rendered moot.

5. Charging of Interest under Sections 234A, 234B, and 234C:
The assessee contended that the interest charged under Sections 234A, 234B, and 234C was incorrectly calculated based on the disputed additions. With the quashing of the additions, the basis for charging interest was also invalidated. The ITAT did not separately adjudicate this issue, as it was inherently resolved with the quashing of the additions.

Conclusion:
The ITAT dismissed the appeals filed by the Revenue, upholding the CIT(A)'s decision to quash the proceedings under Section 153C and the related additions under Section 68. The appeals filed by the assessee were dismissed as infructuous, given that the primary relief sought by the assessee was already granted by quashing the Section 153C proceedings. The ITAT emphasized that for proceedings under Section 153C to be valid, they must be based on incriminating material directly related to the relevant assessment years, which was not demonstrated in this case.

← Previous Next →