2022 (12) TMI 674 - AT - Income Tax

Initiation of proceedings u/s 153C - existence of incriminating material - HELD THAT - A statement cannot be considered to be incriminating merely on the basis of questions posed. The questions posed and the reply given are to be considered together to examine whether the statement contains any incriminating material. We have perused the statement of the Assessee recorded u/s132(4) including Questions No. 16, 17, 48, 49, 50, 51 and 53 along with the reply given by the Assessee. We are of the considered view, that the aforesaid statement does not contain anything incriminating. We have also perused the assessment order and the same neither refers nor allude to any incriminating material. The assessment before us is concluded/un-abated assessment, and therefore, no additions could have been made in the absence of incriminating material. Therefore, respectfully following the judgment of the Hon ble Supreme Court in the case of Sinhgad Technical Education Society 2017 (8) TMI 1298 - SUPREME COURT and the judgment Continental Warehousing Corporation (Nhava Sheva) Ltd. 2015 (5) TMI 656 - BOMBAY HIGH COURT in absence of any incriminating material, we set aside the order passed by the CIT(A) and delete all the additions made by the Assessing Officer in the Assessment Order passed under Section 153C read with Section 143(3) of the Act for the Assessment Year 2010-11. Assessee appeal allowed.

Issues Involved:

1. Validity of proceedings initiated under Section 153C of the Income Tax Act, 1961.
2. Treatment of short-term capital gain as business income.
3. Levy of interest under Sections 234B and 234C.
4. Initiation of penalty proceedings under Section 271(1)(c).
5. Existence and relevance of incriminating material.

Detailed Analysis:

1. Validity of Proceedings under Section 153C:

The Assessee challenged the initiation of proceedings under Section 153C on the grounds of improper satisfaction recorded by the Assessing Officer (AO) and lack of incriminating material. The AO issued a notice under Section 153C after a search at Malpani Infertility Clinic Pvt. Ltd. and found jewelry during the search. The Assessee argued that the AO did not have proper satisfaction that the jewelry belonged to him and that it had a bearing on the total income for the relevant assessment years. The Tribunal noted that the satisfaction recorded on 03.10.2017 was valid and that the AO's subsequent inquiries did not invalidate the satisfaction. The Tribunal held that the scheme of assessment under Section 153C/153A is different from Section 147, and judicial precedents under Section 147 cannot be applied to Section 153C/153A. Therefore, the initiation of proceedings under Section 153C was upheld.

2. Treatment of Short-Term Capital Gain as Business Income:

The Assessee contended that the AO erred in treating short-term capital gain as business income. The Tribunal noted that the AO had characterized the capital gain from share transactions as business income, which was partly upheld by the CIT(A). However, the Tribunal found that the assessment was based on the statements recorded during the search, which did not contain any incriminating material. Therefore, the Tribunal set aside the order of the CIT(A) and deleted the additions made by the AO.

3. Levy of Interest under Sections 234B and 234C:

The Assessee challenged the levy of interest under Sections 234B and 234C. The Tribunal held that the levy of interest is consequential and depends on the final determination of the tax liability. Since the additions made by the AO were deleted, the levy of interest was also set aside.

4. Initiation of Penalty Proceedings under Section 271(1)(c):

The Assessee challenged the initiation of penalty proceedings under Section 271(1)(c). The Tribunal held that the initiation of penalty proceedings is premature and can be contested after the final determination of the tax liability. Since the additions made by the AO were deleted, the initiation of penalty proceedings was also set aside.

5. Existence and Relevance of Incriminating Material:

The Tribunal examined whether there was any incriminating material found during the search that could justify the additions made by the AO. The Tribunal noted that the statements recorded during the search did not contain any incriminating material, and the jewelry found was not added to the Assessee's income. The Tribunal held that in the absence of any incriminating material, no additions could be made for the relevant assessment years. Therefore, the Tribunal set aside the order of the CIT(A) and deleted the additions made by the AO.

Conclusion:

The appeals filed by the Assessees were partly allowed, and the additions made by the AO were deleted due to the absence of incriminating material. The cross-appeals filed by the Revenue were dismissed as infructuous. The Tribunal's order emphasized the importance of incriminating material in search assessments and upheld the procedural requirements under Section 153C.

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