2025 (2) TMI 576 - AT - Income Tax

Addition u/s 56(1)(vii) - amount received on sale of shares held as agent/benamidar of the assessee - consideration received by third party for sale of shares of a company - Relevancy of search material found in any search HELD THAT - As in Common Cause (A registered Society Vs. UOI 2017 (1) TMI 1164 - SUPREME COURT where it has been held that search material found in any search do not have any evidentiary value and the transactions recorded in such papers etc. would have to be corroborated by independent evidence to proceed against the person whose names appear as beneficiaries in such documents. In the present case the entire addition hinges on evidence gathered from third party document without any corroborative evidence to suggest that in the so-called documents that have been found and account by name Shri J Reddy or JR as the assessee and the assessee is beneficiary of whatever amount recorded therein. Although the AO claimed that the pen drive was found in the possession of an employee subsequently those employees have denied allegation of the Assessing Officer and stated that no such pen drive was found during the course of search. Even Mr. Puneet Dalmia Managing Director of Dalmia group also denied having knowledge of any pen drive found in the possession of employee and contents recorded therein. Therefore the presumption with regard to contents of documents has been drawn against the assessee without there being any corroborative evidence to link such documents to the assessee. If at all any presumption can be drawn on such documents then the same can be drawn against Dalmia group and the onus shall be on the Dalmia group to produce cogent material to rebut presumption u/s 132(4A). The Dalmia group never alleged that the transactions belong to the assessee. The additions made by the AO on the basis of third-party evidence without providing this evidence to the assessee and allowing cross examination is contrary to law and settled position. AO is erred in making additions towards consideration received by Dalmia Bharat Enterprises Ltd. towards sale of shares of Bharati Cement Corporation Ltd to M/s Parcifim SAS amounting to Rs. 139.67 crores as income of the assessee u/s 56(1)(vii). CIT(A) after considering the relevant facts has rightly deleted the additions made by the AO towards cost of acquisition of on protective basis and substantive addition in the hands of the assessee. Addl. CIT Jurisdiction to pass order - Whether the Ld. Addl. CIT who passed the assessment order is vested with jurisdiction and authority to pass such order in absence of proper order u/s 120(4)(b)? - HELD THAT - This issue is squarely covered in favour of the assessee by the decision of Coordinate Bench of the ITAT Mumbai in the case of TATA Communications Ltd. 2019 (8) TMI 1446 - ITAT MUMBAI where the Tribunal after considering arguments of both sides including the case laws cited by the Ld. AR for the assessee as well as the Ld. DR came to the conclusions that unless the Add. CIT who passed the assessment order possesses valid jurisdiction and authority by virtue of order u/s 120(4)b of the Act he cannot act as an A.O and pass assessment order consequently the assessment order passed by the A.O is null and void-ab-initio and liable to be quashed. The assumption of jurisdiction by the Addl.CIT Range-2 Hyderabad and consequent assessment order passed by the Assessing Officer without an valid order u/s 120(4)(b) of the Act is illegal void ab-initio and liable to be quashed. Thus we quash the assessment order passed by the Assessing Officer u/s 143(3). Appeal of assessee is allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The primary issues considered in this legal judgment include:

• Whether the CIT(A) erred in deleting the addition of Rs. 139.67 crores made under Section 56(1)(vii) of the Income Tax Act, 1961, towards the amount received on the sale of shares held by Dalmia Bharat Enterprises Ltd. as an agent/benamidar of the assessee.
• Whether the Assessing Officer (AO) correctly presumed the evidence found during the search in the Dalmia group as applicable to the assessee.
• Whether the CIT(A) correctly interpreted the absence of regular business transactions between the assessee and the Dalmia group as a basis for relief.
• Whether the evidence found during the search was sufficient to establish the assessee as the beneficiary of the transactions.
• Whether the Addl. CIT had the jurisdiction and authority to pass the assessment order.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Deletion of Addition under Section 56(1)(vii)

Relevant Legal Framework and Precedents: Section 56(1)(vii) of the Income Tax Act pertains to income from other sources, specifically addressing amounts received without consideration.

Court's Interpretation and Reasoning: The CIT(A) found that the AO's addition was based on presumptions drawn from documents found during a search of a third party (Dalmia group) and not directly from the assessee. The CIT(A) held that the presumption under Section 132(4A) could not be extended to the assessee.

Key Evidence and Findings: The AO relied on a pen drive seized from a Dalmia group employee, which allegedly contained references to "J.Reddy" and "JR," presumed to be the assessee.

Application of Law to Facts: The CIT(A) concluded that without corroborative evidence directly linking the assessee to the transactions, the addition was not justified.

Treatment of Competing Arguments: The CIT(A) noted that the AO's reliance on third-party evidence without direct linkage to the assessee was insufficient.

Conclusions: The CIT(A) directed the deletion of the addition, emphasizing the lack of direct evidence against the assessee.

Issue 2: Presumption of Evidence from Dalmia Group Search

Relevant Legal Framework and Precedents: Section 132(4A) deals with the presumption of evidence found during a search.

Court's Interpretation and Reasoning: The CIT(A) held that the presumption under Section 132(4A) applies only to the person from whom the documents were seized, not to third parties.

Key Evidence and Findings: The AO's presumption was based on entries and communications found in the Dalmia group's possession.

Application of Law to Facts: The CIT(A) emphasized that the AO extended the presumption beyond its legal scope.

Treatment of Competing Arguments: The CIT(A) rejected the AO's interpretation as it lacked direct evidence linking the assessee to the documents.

Conclusions: The CIT(A) concluded that the presumption was improperly applied to the assessee.

Issue 3: Absence of Regular Business Transactions

Relevant Legal Framework and Precedents: The legal framework does not mandate regular business transactions for establishing a connection between parties.

Court's Interpretation and Reasoning: The CIT(A) found that the absence of regular transactions between the assessee and the Dalmia group weakened the AO's case.

Key Evidence and Findings: The AO alleged that the transactions were on a quid pro quo basis.

Application of Law to Facts: The CIT(A) determined that without evidence of regular dealings, the AO's allegations were speculative.

Treatment of Competing Arguments: The CIT(A) dismissed the AO's argument due to lack of evidence.

Conclusions: The CIT(A) found the AO's reliance on alleged quid pro quo transactions unsubstantiated.

Issue 4: Sufficiency of Evidence from Dalmia Group Search

Relevant Legal Framework and Precedents: Legal standards require corroborative evidence to substantiate claims against a third party.

Court's Interpretation and Reasoning: The CIT(A) held that the evidence found during the search was insufficient to establish the assessee as the beneficiary.

Key Evidence and Findings: The AO's case relied on documents and communications found with the Dalmia group.

Application of Law to Facts: The CIT(A) emphasized the need for direct evidence linking the assessee to the transactions.

Treatment of Competing Arguments: The CIT(A) noted the lack of corroborative evidence to support the AO's claims.

Conclusions: The CIT(A) concluded that the evidence was inadequate to justify the addition.

Issue 5: Jurisdiction and Authority of Addl. CIT

Relevant Legal Framework and Precedents: Sections 120 and 127 of the Income Tax Act address the jurisdiction and authority of tax officers.

Court's Interpretation and Reasoning: The Tribunal found that the Addl. CIT lacked the jurisdiction and authority to pass the assessment order without a specific order under Section 120(4)(b).

Key Evidence and Findings: The Tribunal noted the absence of an order conferring jurisdiction on the Addl. CIT.

Application of Law to Facts: The Tribunal emphasized the legal requirement for a specific order to confer jurisdiction.

Treatment of Competing Arguments: The Tribunal rejected the Revenue's argument that general orders sufficed for jurisdiction.

Conclusions: The Tribunal quashed the assessment order due to lack of jurisdiction.

3. SIGNIFICANT HOLDINGS

Verbatim Quotes of Crucial Legal Reasoning: "The presumption under Section 132(4A) cannot be extended to a third party without corroborative evidence directly linking the third party to the documents found."

Core Principles Established: Presumptions under Section 132(4A) apply only to the person from whom documents are seized, and jurisdiction must be conferred by a specific order under Section 120(4)(b).

Final Determinations on Each Issue: The Tribunal upheld the CIT(A)'s decision to delete the addition due to lack of evidence and jurisdiction, and quashed the assessment order for lack of jurisdiction.