2024 (10) TMI 696 - AT - Income Tax

Validity of assessment passed u/s 153A - material found in the search of any other person than the assessee - validity of search conducted - assessee expressed his surprise as to the conduct of the search in the case of the assessee which remained 5 minutes only and nothing has been found incriminating from the premises of the assessee - HELD THAT - As is evident that a search seizure operation u/s.132(1) of the Act was carried out on 30.06.2016 at the various premises of Bajaj Group, kota. Whereas in the case of the assessee, a search was conducted at the resident of the assessee on 01.07.2016. As is evident from the record that the alleged search in the case of the assessee was carried out only for five minutes starting at 2.55 and ended at 3.00 - AO through ld. DR did not place on record the nature of document found at the premises of the assessee which are incriminating in nature. With this basic fact now, to decide the technical ground raised by the assessee and before going further on the issue we would like to go through the relevant provisions of section 132 and 153A of the act along with Rule 112 of the Income-tax Rules' 1962. Provisions of section 132 and 153A of the act along with Rule 112 of the Income-tax Rules' 1962 activate the applicability of provision of Section 153A of the Act will arise - Search warrant can be issued against any person who is falling within the scope of either or more of the conditions as mentioned in clause ( a ),( b ) or ( c ) of section 132(1) and against whom reasons to believe has been formed based on the possession of information. Therefore, the warrant of authorization so issued should specify the name of the person or persons against whom it is issued along with the complete address of the premises to be searched. In other words, if a warrant of authorization has not been issued in case of a person, the provisions of Section 153A cannot be initiated in his case. Whether any material found in the search of any other person than the assessee can be considered in the assessment u/s 153A of the assessee? - As decided in Kabul Chawla 2015 (9) TMI 80 - DELHI HIGH COURT completed assessment can be interfered with by the Assessing Officer on the basis of any incriminating material unearthed during the course of search. If in relation to any assessment year no incriminating material is found, no addition or disallowance can be made in relation to that year in exercise of power under section 153A of the Act. The reference to the incriminating material in the above decisions of Hon'ble High Court is about incriminating material found as a result of search of the assessee's premises and not of any other assessee. On a conjoint noticeable provision of section 153A read with section 132 of the act and the judgment of the Delhi Court, in our considered opinion only the material unearthed during the course of a search by virtue of execution of a particular warrant of authorization q ua a person can be used for framing assessment u/s 153A of the act in case of such a person. Also see ABHISAR BUILDWELL P. LTD. 2023 (4) TMI 1056 - SUPREME COURT Based on the discussion so recorded and the fact of the case is that in the search conducted at the premises of the assessee no incriminating material was found and therefore, no addition can be made in the case of the assessee invoking the provision of section 153A. Addition being the difference between ITR filed u/s. 153A and ITR filed u/s. 139 - On this aspect of the matter the bench noted that it was a error on the part of the ld. AO to make such addition as the assessee has in that proceeding itself revised the income by filling the revised computation filed declaring total income at Rs. 29,43,477/- and deposited tax of Rs. 10,38,490/- thereon. Therefore, the AO is wrong to say that assessee reduced income in the ROI filed u/s 153A, which is not meant for reducing income already declared. Hence, it is a mere suspicion and no valid basis. DR did not controvert this factual aspect, therefore, ground no. 3 raised by the assessee is allowed. Undisclosed income from Bajaj Enclave Scheme - According to the oral agreement the assessee has to make investment in the purchase of land and these persons will develop the land and also deal with the customers. These persons having made negotiations with the customers, were having direct contact with / approach to the customers. The assessee only received the amount from the buyers as per sale agreements and after receiving the full payment executed the legal papers in favour of the customers w.r.t. transfer. The assessee was not in the knowledge of excess money, if any received by these people from the customers. However, it is a fact that the assessee did not receive anything over and above the amount showing sale agreement amount. Moreover, the assessee recorded all these transactions in his books of account fairly. There was no any iota of evidence found (showing un-disclosed profit earned by the assessee in the sale transaction if any) at the premises of the assessee except his solitary statement which was given by the assessee with the advice of his associates during the search. In fact, these amounts were also appearing in the documents found and seized from the third-party premises. Based on these observations ground no. 4 raised by the assessee is allowed as the actual profit earned by the assessee has already been taxed. Addition of alleged bogus development expenses - Ignoring the reply of the assessee, the AO finally concluded that the claimed expenditure of Rs 8.50 Cr and the development was never incurred, and it was merely an attempt to reduce the taxable income, it was a claim of bogus expenditure made. We note from the statement so recorded ld. AO failed to appreciate the fact that assessee consistently contended that he never incurred any expenditure on account of development of expenses. The assessee only purchased the land and associated with these three people for developing, plotting and marketing the land. All the development expenditure was borne by the Shri Surinder Pal Singh, Shri Vipin Kumar Lodha and Shri Harvinder Singh - AO also did not consider the reply to question no 8. Based on these set of fact when the part of development and marketing is the activities fixed for other persons there was no need for the assessee to incur any expenditure. Based on these observation ground no. 5 raised by the assessee is allowed. Addition u/s 68 - unexplained credit in the bank account of the assessee - HELD THAT - Assessee filed various details in support of the credit made in the bank account. CIT(A) not having rejected any of the supporting documents which clearly depicted the actual profit earned by the assessee Rs 28.39 lakh out of the declared sale consideration and was also declared in the Revised Computation as admitted by the CIT(A) himself and even by the AO. Thus, there was no reason for the CIT(A) to have applied in the appellate stage to higher GP rate of 26.78% derived from the seized material of total estimate of project as against the declared profit rate of 13.75%. The revenue has not taken any specific ground against the deletion Mby the ld. CIT(A). Thus, we see no justification behind making a new addition of Rs. 46,94,853/- while deleting the addition of Rs 2.18 crore by him. Based on these observations ground no. 6 raised by the assessee is allowed. Estimation of profit by the ld. CIT(A) and adding only profit instead of whole credit in the case of the assessee - as per AO as assessee failed to explain the nature and source of the credit with documentary evidence and therefore, the whole credit is required to be added - HELD THAT - AO has not disputed the purchase consideration and its related evidence now the revenue cannot dispute that ld. CIT(A) should have sustained the whole credit being the sales consideration against which claim of cost was allowed based on the evidence placed on record. Therefore, ground no. 3 has no force and the same is dismissed. As regards the ground no. 2 raised by the assessee as the third-party document seized suggest the profit of the project @ 26.78 % which is finding of fact by the ld. CIT(A) and in this appeal no contrary material is brough on record and therefore, ground no. 2 raised by the revenue also stands dismissed.

Summary

Issues Involved:

1. Jurisdiction of assessment under Section 153A.
2. Addition of Rs. 6,55,000/- due to differences in income declared under Sections 153A and 139.
3. Addition of Rs. 1,62,00,000/- for undisclosed income from Bajaj Enclave Scheme.
4. Addition of Rs. 3,06,00,000/- for alleged bogus development expenses.
5. Addition of Rs. 46,94,853/- as unexplained credit in the bank account.
6. Double addition of Rs. 38,06,922/- in the bank account.

Detailed Analysis:

1. Jurisdiction of Assessment under Section 153A:

The court examined whether the assessment under Section 153A was valid when no incriminating material was found at the assessee's premises during the search. The search at the assessee's residence lasted only five minutes, and no incriminating material was seized. The court referenced the case of *Kabul Chawla* and the Supreme Court's decision in *Abhisar Buildwell Pvt. Ltd.*, which held that in the absence of incriminating material, completed assessments cannot be disturbed under Section 153A. The court concluded that the assessment was invalid as it was based on material found at the premises of third parties, not the assessee.

2. Addition of Rs. 6,55,000/-:

The addition was made due to the difference between the income declared under Section 153A and Section 139. The court found that the assessee had filed a revised computation during the assessment proceedings, declaring a higher income than originally declared. Therefore, the addition was based on a misunderstanding, and the court allowed the assessee's appeal on this ground.

3. Addition of Rs. 1,62,00,000/- for Undisclosed Income:

The addition was based on documents found at the premises of third parties and the assessee's statement. The court noted that the assessee had consistently claimed that he only received the sale proceeds as per the agreements and had no knowledge of any excess money received. The court found no corroborative evidence to support the addition and allowed the assessee's appeal, noting that the actual profit earned by the assessee had already been taxed.

4. Addition of Rs. 3,06,00,000/- for Bogus Development Expenses:

The court found that the assessee had consistently claimed not to have incurred any development expenses, as these were borne by other parties. The court noted that the AO had failed to appreciate this fact and allowed the assessee's appeal, concluding that the addition was based on an incorrect understanding of the facts.

5. Addition of Rs. 46,94,853/- as Unexplained Credit:

The court found that the assessee had explained the source of the bank deposits as sale proceeds from Bajaj Enclave plots. The CIT(A) had not rejected any supporting documents and had instead applied a higher profit rate. The court found no justification for this and allowed the assessee's appeal, deleting the addition.

6. Double Addition of Rs. 38,06,922/-:

The court noted that the amount was a mere bank transfer and not an unexplained credit. The CIT(A) granted relief, which the court upheld, dismissing the revenue's appeal on this ground.

Conclusion:

The court allowed the assessee's appeal, finding that the assessment under Section 153A was invalid due to a lack of incriminating material found during the search at the assessee's premises. The court also found that the additions made by the AO were not justified based on the evidence and explanations provided by the assessee. The revenue's appeal was dismissed.