Background
A search u/s 132 was conducted on 20.11.2009 in the case of Trishul Developers (later taken over by Trishul Buildtech Infrastructure Pvt. Ltd.). Simultaneous searches were carried out at the Goldfinch Hotels Group & residences of key persons.
In the residence of Vijay Kumar (Manager of K.P. Shetty, Managing Partner), diaries were seized, containing cash receipts & payments written by him & an office assistant on instructions of Shetty & other seniors. Similarly, in the premises of Prasad Kumar Shetty (brother-in-law of K.P. Shetty), diaries) were seized, showing cash inflows of over ₹10.13 crore received from Trishul Developers’ head office & paid out as per instructions.
Assessee’s Contentions
- Claimed assessments were invalid since the firm had been succeeded by the company (TBIPL) w.e.f. 01.02.2010, hence notices u/s 153A in firm’s name were bad in law.
- Argued that since seized diaries were not recovered from its possession, proceedings should have been u/s 153C, not 153A.
- Claimed diary notings were mere “scribblings” & not reliable evidence; also relied on V.C. Shukla (SC) to argue that entries need corroboration.
- Objected to taxing “difference between receipts & payments” recorded in diaries.
CIT(A)’s Findings
- Assessments in firm’s name were valid since returns were filed using the firm’s PAN & status; AO not informed of conversion.
- 170(2) not applicable as predecessor firm was available & had filed returns.
- Additions justified, since assessee admitted part of diary notings but disowned the rest; AO rightly taxed only net excess of payments over receipts as undisclosed income.
Tribunal’s Decision
ITAT dismissed all appeals, holding:
- 170(1) applied – firm assessable for years prior to conversion; s.170(2) irrelevant as firm was traceable.
- 153A validly invoked – since assessee itself was searched u/s 132, AO was bound to assess six years irrespective of incriminating material. Argument that it should be u/s 153C rejected.
- Diary entries admissible – made on Shetty’s instructions, partly admitted by assessee, hence binding; presumption u/s 292C applies. Mere subsequent denial insufficient.
- Method of taxing difference between cash receipts & payments reasonable, since unexplained outflows indicate undisclosed expenditure u/s 69C, & AO gave credit for explained parts.
Key Takeaways
- Succession & s.170 – successor company cannot escape past firm’s liabilities when firm existed & filed returns.
- Search assessments – once valid search u/s 132 occurs, AO must assess six years u/s 153A, even if incriminating material is from third parties.
- Diary evidence – if linked to assessee by admissions & corroboration, entire contents are binding; partial acceptance not permitted.
- Unaccounted payments – unexplained cash outflows over receipts taxable u/s 69C as undisclosed expenditure.
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