Case Law Details

Case Name : Lalji Khimjibhai Patel Vs ACIT (ITAT Rajkot)
Appeal Number : ITA Nos. 712 to 715/RJT/2010
Date of Judgement/Order : 21/10/2019
Related Assessment Year : 2001-02, 2005-06 to 2007-08
Courts : All ITAT (7172) ITAT Rajkot (27)

Lalji Khimjibhai Patel Vs ACIT (ITAT Rajkot)

The issue under consideration is whether the assessee is correct in stating that cognizance taken under section 153A of the Act is illegal at the end of the A.O.?

ITAT states that, the assessee has challenged validity of jurisdiction invoked by the AO under section 153A of the Act. However, on perusal of the record would indicate that statement of the assessee was recorded under section 132(4) of the Act during the course of search, and he has admitted unaccounted income of Rs. 80,69,186/-. The disclosure made under section 132(4) is an admissible evidence, and therefore, it is to be concluded that during the course of search material was found, which gave authority to the AO to invoke jurisdiction under section 153A of the Act. Apart from the above, it also emerges out that during the course of search certain jottings and notings showing figure of Rs.86,69,186/- as unexplained investment was also found, which was confronted to the assessee during the course of search in his statement under section 132(4) of the Act. As per ITAT, it is a sufficient material for forming a prima facie opinion that income has escaped assessment and notice under section 153A is required to be made. Therefore, action taken by the AO under section 153A in this year is concerned, is upheld. Accordingly, this ground raised by the assessee’s appeal in this year are rejected.

FULL TEXT OF THE ITAT JUDGEMENT

The ld.CIT(A) has decided four quantum appeals of the assessee against the assessment orders passed under section 143(3) r.w. Section 153A of the Income Tax Act, 1961 in the Asstt.Years 2001-02, 2005-06 to 2007-08 by separate orders on 27.11.2009. These orders have been challenged by the assessee in ITA No.712 to 715/RJT/2010. Similarly, the ld.CIT(A) has decided penalty appeals of the assessee against orders passed under section 271(1)(c) of the Act in all these four years by separate orders on 26.8.2013, and these orders are being impugned by the assessee in ITA No.388 to 391/RJT/2013. Since common issues are involved, therefore, we heard all these appeals together and deem it appropriate to dispose of them by this common order. First we take quantum appeals.

2. Grounds of appeal taken by the assessee are argumentative and descriptive in nature; they are not in consonance with Rule 8 of the Income Tax (Appellate Tribunal) Rules, 1963. In the first fold of grievance, it is pleaded by the assessee that the ld.CIT(A) has erred in confirming the action of the AO in passing the assessment orders under section 153A of the Act. In other words, the grievance of the assessee is that cognizance taken under section 153A in these assessment years is illegal at the end of the

3. Brief facts of the case are that search under section 132 of the Income Tax Act was carried out at the premises of the assessee on 11.10.2006. According to the AO, during the course of search certain incriminating material were found and seized. Notice under section 153A of the Act was issued on 1.10.2007 which was duly served upon the assessee. In response to the notice, the assessee has filed return of income on 24.9.2008. It is pertinent to note that the facts in this regard are common in all the years, and therefore, for the facility of reference, we take up the facts mainly from the assessment year 2001-02.

4. In this year, the assessee has declared income at Rs.1,16,610/-, in response to the notice under section 153A. The AO thereafter issued notice under section 143(2) and questionnaire to the assessee. He passed the impugned assessment order on 19.12.2008 under section 153A. He determined taxable income of the assessee in the Asstt.Year 2001-02 at Rs.81,85,796/- as against Rs.1,16,610/- returned by the

5. With the assistance of the ld.DR we have gone through the record carefully. In response to the notice of hearing, none has come present on behalf of the assessee. A written submission was filed. The ld.CIT-DR has called for comments of the AO and in the same manner as filed by the assessee, they are taken on record. There is no dispute that the assessments in all these four years have been made under section 143(3) r.w.s. 153A. When these assessments have been framed and the appeals have been decided by the ld.CIT(A), the law with regard to jurisdiction of the AO for passing the assessment order in search case under section 153A has not been developed, as it is available today. It has been developed subsequent to passing of such order, and therefore, for the purpose of understanding scope of assessment under section 153A, the ld.counsel for the assessee has made reference to the following decisions in the written submissions, viz. (i) CITVs. Saumya Construction Ltd., 387 ITR 529 (Guj), (b) Desai Construction P.Ltd., 387 ITR 552 (Guj); and (c) Kabul Chawla, 380 ITR 573 (Del). It is also pertinent to take note of the decision of Hon’ble Delhi High Court in the case of CIT Vs. Kurele Papers, 380 ITR 571 (Del) and CIT Vs. Lata Jain, 384 ITR 543 (Del). Thus, the issue whether the AO could take cognizance of section 153A in these years or not, is a legal issue which on the basis of interpretation given by the subsequent decisions of various High Courts, including the decision of Hon’ble jurisdictional High Court requires to be taken into consideration. The Hon’ble Delhi High Court in the case of Kabul Chawla (supra) has examined the scope of section 153A. After detailed analysis, Hon’ble High Court has summarized legal proposition emerging out for application of section 153A. Such proposition reads as under:

“37. On a conspectus of Section 153A(1) of the Act, read with the provisos thereto, and in the light of the law explained in the aforementioned decisions, the legal position that emerges is as under:

i. Once a search takes place under Section 132 of the Act, notice under Section 153 A(1) will have to be mandatorily issued to the person searched requiring him to file returns for six AYs immediately preceding the previous year relevant to the AY in which the search takes

ii. Assessments and reassessments pending on the date of the search shall abate. The total income for such AYs will have to be computed by the AOs as a fresh

iii. The AO will exercise normal assessment powers in respect of the six years previous to the relevant AY in which the search takes place. The AO has the power to assess and reassess the ‘total income’ of the aforementioned six years in separate assessment orders for each of the six years. In other words there will be only one assessment order in respect of each of the six AYs “in which both the disclosed and the undisclosed income would be brought to tax”.

iv. Although Section 153 A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search material or information available with the AO which can be related to the evidence found, it does not mean that the assessment “can be arbitrary or made without any relevance or nexus with the seized material. Obviously an assessment has to be made under this Section only on the basis of seized “

v. In absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word ‘assess’ in Section 153 A is relatable to abated proceedings (i.e. those pending on the date of search) and the word ‘reassess’ to completed assessment

vi. Insofar as pending assessments are concerned, the jurisdiction to make the original assessment and the assessment under Section 153A merges into Only one assessment shall be made separately for each AY on the basis of the findings of the search and any other material existing or brought on the record of the AO.

vii. Completed assessments can be interfered with by the AO while making the assessment under Section 153 A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original ” 

It is also pertinent to note that in the case of CIT Vs. Kabul Chawla (supra) Hon’ble Court has observed that return for Asstt.Years 2002-03, 2005-06 and 2006-07 were accepted under section 143(1) of the Act. Thus, Hon’ble Court has considered this acceptance of return as an assessment  made under section 143(1). In concluding paragraph, the Hon’ble Court has held that on the date of search, assessments for A.Ys. 2002-03, 2005-06 and 2006-07 already stood completed and no incriminating material was unearthed during the search, therefore, no addition should have been made to the income of the assessee.

6. We would like to take note of proposition laid down by the Hon’ble jurisdictional High Court in the case of Saumya Construction, which reads as under:

“18. In this case, it is not the case of the appellant that any incriminating material in respect of the assessment year under consideration was found during the course of search. At the relevant time when the notice came to be issued under section 153A of the Act, the assessee filed its return of income. Much later, at the fag end of the period within which the order under section 153A of the Act was to be made, in other words, when the limit for framing the assessment as provided under section 153 was about to expire, the notice has been issued in the present case seeking to make the proposed addition of Rs.11,05,51,000/- on the basis of the material which was not found during the course of search, but on the basis of a statement of another person. In the opinion of this court, in a case like the present one, where an assessment has been framed earlier and no assessment or reassessment was pending on the date of initiation of search under section 132 or making of requisition under section 132A, while computing the total income of the assessee under section 153A of the Act, additions or disallowances can be made only on the basis of the incriminating material found during the search or requisition. In the present case, it is an admitted position that no incriminating material was found during the course of search, however, it is on the basis of some material collected by the Assessing Officer much subsequent to the search, that the impugned additions came to be made.

19. On behalf of the appellant, it has been contended that if any incriminating material is found, notwithstanding that in relation to the year under consideration, no incriminating material is found, it would be permissible to make additions and disallowance in respect of all the six assessment years. In the opinion of this court, the said contention does not merit acceptance, inasmuch as, the assessment in respect of each of the six assessment years is a separate and distinct assessment. Under section 153A of the Act, an assessment has to be made in relation to the search or requisition, namely, in relation to material disclosed during the search or requisition. If in relation to any assessment year, no incriminating material is found, no addition or disallowance can be made in relation to that assessment year in exercise of powers under section 153A of the Act and the earlier assessment shall have to be reiterated. In this regard, this court is in complete agreement with the view adopted by the Rajasthan High Court in the case of Jai Steel (India), Jodhpur (supra). Besides, as rightly pointed out by the learned counsel for the respondent, the controversy involved in the present case stands concluded by the decision of this court in the case of Jayaben Ratilal Sorathia (supra) wherein it has been held that while it cannot be disputed that considering section 153A of the Act, the Assessing Officer can reopen and/or assess the return with respect to six preceding years; however, there must be some incriminating material available with the Assessing Officer with respect to the sale transactions in the particular assessment year.”

7. In the light of the above proposition, let us examine the facts of each assessment year. First we take ITA No.713/Rjt/2010 for the Asstt.Year 2005-06.Though, the exact date of filing of original return under section 139 of the Income Tax Act is not discernible from the record, but perusal of the paragraph-4 of the assessment order, it indicate that originally return was filed under section 139(1) of the Act. The time limit to issue notice under section 143(2) has expired before the search was conducted upon the assessee on 11.10.2006. The AO has not referred to any seized material for the additions made to the total income of the assessee. In other words, no material was found during the course of search relating to this assessment year exhibiting escapement of taxable income or availability of undisclosed income for the purpose of assessment under section 153A of the Income Tax Act. If there is no material available, and on re-appraisal of that very material addition has been made by the AO, then such assessment order is not sustainable in the eyes of law, because, the AO has no jurisdiction to invoke section 153A in view of principle laid down by the Hon’ble Delhi High Court in the case of Kabul Chawla (supra). No proceedings were pending on the date of search for this assessment. Therefore, nothing would abate for making a fresh assessment under section 153A of the Act. We have perused the comments  of the AO at the time of hearing. The AO has not given any comments qua first fold of grievance shown by the assessee. His comments are related to various additions made by him with regard to unexplained income from Somnath building, agriculture income etc. Accordingly, we allow the appeal of the assessee, and quash the assessment order passed under section 153A of the Act. Since we have quashed the assessment order in the Asstt.Year 2005- 06, therefore, no penalty would be imposable upon the assessee under section 271(1)(c) of the Income Act.  Accordingly, we allow appeal of the assessee and  delete the penalty.    Both the appeals of the assessee for the Asstt.Year 2005-06 are allowed.

8. Now we take ITA No.712/RJT/2010 for the Year 2001-02.  As far as this assessment year is concerned, the assessee has challenged validity of jurisdiction invoked by the AO under section 153A of the Act. However, on perusal of the record would indicate that statement of the assessee was recorded under section 132(4) of the Act during the course of search, and he has admitted unaccounted income of Rs.80,69,186/-. The disclosure made under section 132(4) is an admissible evidence, and therefore, it is to be concluded that during the course of search material was found, which gave authority to the AO to invoke jurisdiction under section 153A of the Act. Apart from the above, it also emerges out that during the course of search certain jottings and notings showing figure of Rs.86,69,186/- as unexplained investment was also found, which was confronted to the assessee during the course of search in his statement under section 132(4) of the Act. To our mind, it is a sufficient material for forming a prima facie opinion that income has escaped assessment and notice under section 153A is required to be made. Therefore, action taken by the AO under section 153A in this year is concerned, is upheld. Accordingly, ground no.1 and 2 of the  assessee’s appeal in this year are rejected.

9. The next fold of grievance in the Asstt.Year 2001-02 that the ld.CIT(A) has erred in confirming the addition of 80,69,186/-.

10. Brief facts of the case are that according to the AO, during the course of search, statement of the assessee was recorded under section 132(4) of the Act. In reply to question no.30, the assessee himself categorically admitted that an amount of 80,69,186/- for construction of Somnath building was incurred out of books. Therefore, the assessee was required to include this admitted income in his return of income, but it was not included. The AO has confronted the assessee as to why he has not disclosed the undisclosed income admitted during the course of search. In response to the query of the AO, it was submitted by the assessee that during the course of search, his accountant was made to write on a piece of paper various expenditure relating to construction activities of Somnath building whose total worked out at Rs.80,69,186/-. He alleged that nothing was found during the course  of search and an affidavit to this effect was filed. The ld.AO did not accept this affidavit of the assessee by observing that it was filed after 25 months from the date of search. The assessee is a regular assessee and engaged in the business of construction. He would not sit idle waiting for the department to take initiative and prove his guilt. He should have retracted his admission immediately after the search by appraising the higher authorities. In other words, the AO was of the view that disclosure made under section 132(4) is an admissible evidence, it could not be ignored. More so, this declaration is based on the discovery of certain notings on a piece of paper. The ld.AO made addition of Rs.80,69,186/-. The appeal to the CIT(A) did not bring any relief. The ld.CIT(A) has concurred with the AO. The relevant finding of the ld.CIT(A) reads as under:

“4.7 The appellant was never been asked to file any affidavit. The copy of affidavit filed after about 25 months of its notarization cannot be even treated as an affidavit because its contents relates to the persons before whom it was never filed. Thus, before the Assessing Officer, it is only a simple piece of paper having contents/allegations against the Authorised Officers or the search party who are not the part and parcel of the assessment proceedings. The Ld. Counsel had not brought any material on record to show that the appellant ever asked the Assessing Officer to confront the Authorized Officers on the basis of the copy of this so called affidavit. The appellant had never produced the two respectable witnesses in his defence before the Assessing Officer to establish the contents of the so called affidavit as true nor their affidavits were filed. Those two persons were the actual witnesses of  the search proceedings and were from the same locality. Thus, the copy of the so called affidavit not supported by any evidence had no evidentiary value. There is another reason to disbelieve the contents of the affidavit. As per the contents of affidavit, assessee’s accountant Shri Deepakbhai Kansara was forced to prepare the document containing expenditure of Rs. 80,69,186/-. However, the Ld. Counsel has submitted during the course of appellate proceedings in writing that the Assessing Officer had made the addition by relying on the sheet of paper not prepared by the appellant or his staff. Thus, there is a contradiction of the facts as to who had alleged to be prepared that paper having details of Rs. 80,69,1867-. The contents of writng of piece of paper are having contradictory and changing explanations.

 “4.8 The appellant filed a copy of affidavit after about 25 months of its notarisation and that also not filed before the authorities who conducted the search but before the Assessing Officer who was not a party to that search proceedings. The Ld. Counsel could not rebut the propositions of the Assessing Officer discussed in the assessment order that the seized material and notings on paper were in existence before the statement was recorded in the presence of the witnesses. No objection whatsoever was raised by the two independent witnesses in whose presence the whole search proceedings were carried out. The statement was also not recorded in odd hours on 11.10.2006. The appellant himself declared certain income on” the basis of seized material brought to his notice while recording the statement u/s 132(4) of the Act. He himself admitted the unaccounted income in the statement. If the statement was extracted under coercion or thread, what prevented the assessee to retract the statement soon after conclusion of the search. Moreover, except the allegations in the affidavit, there is no direct or circumstancial evidence brought on record by the assessee to prove that the statement was taken under coercion or threat. The evidences seized during search corroborates the genuineness of the statement given at the time of search. No iota of evidence is given by the assessee in support of retraction. This view is well supported by the decision of the Hon’ble Ahmedabad Tribunal in the case of Dy.CIT vs. Bhogilal Moolchand 96 ITD 344 (Ahd.). Thus, the statement cannot be said to be forcefully

4.9 In view of the above discussion, the contention of the appellant that the appellant was forcefully made to admit an amount of Rs. 80,69,186/- as unexplained expenditure on 11.10.2006 is baseless and no cognigence can be taken for the so called affidavit filed before the Assessing Officer after 25 months of its notarisation. The appellant had neither produced the accountant as defence witness nor filed his affidavit. Likewise, no affidavits of the sons of the appellant were furnished who were present at the time of recording of statement and the appellant had admitted the undisclosed income of Rs. 1,00,69,186/- including the unaccounted expenditure of Rs. 80,68,1867-relevant to the year under consideration in their presence and his three sons had confirmed the contents of that statement recorded u/s 132(4) of the Act. The appellant had also failed to file the affidavits of the two independent witnesses in whose presence the whole search and seizure proceedings were conducted. In view of the above discussion, it is held that the retraction of the admitted income is an after thought to escape from the tax liability attached to it. The statement is considered to be recorded as per the procedure and provisions of The appellant had admitted the undisclosed income Voluntarily in the presence of two independent witnesses and the same was confirmed by his three sons also. Thus, the affidavit filed without any supporting evidence and not filed before the authorities against whom the allegations were labeled is having no evidentiary value and the same is rejected and ignored for deciding the issue raised in this ground of appeal. Reliance is also placed on the decision of the Hon’ble Kerala High Court in K Kunhanbam & Sons 219 ITR 235 (Ker) and on the decision of the Hon’ble Third Member Bench of Ahmedabad Tribunal in the case of Asstt.CIT v. Rameshchandra R. Patel 89 ITD 203 (Ahd.) (TM).”

 11. The assessee in his submissions has reiterated his stand that no evidence was found at the time of search. Merely on the basis of statement recorded under section 132(4) additions cannot be made. He emphasised that there should be a corroborative evidence of disclosure made by the assessee. For buttressing his submissions the assessee has made reference to large number of decisions and copies of those decisions have been placed on record viz. (i) CIT Vs. Maulikkumar K. Shah, 307 ITR 137 (Guj), (ii) CIT Vs. Abhalbhai Arjanbhai Jadeja, Tax Appeal Nos.233 of 2013 and others, and (iii) K.P.M Nair Vs. ACIT, Tax Appeal No.1152 of 2007.

12. On the other hand, the ld.CIT-DR relied upon the orders of the Revenue authorities. He specifically took us through finding of the ld.CIT(A) from para-4.7 to 4.9 and emphasised that the statement recorded in the presence of witnesses was sufficient to prove the case of the Revenue. He has not produced his accountant showing that entries are recorded at the behest of the Department under coercion.

13. We have duly considered rival contentions and gone through the record carefully. No doubt, the disclosure  or  admission  made  under section  132(4) of the Act during the course of search proceedings is an admissible evidence but not conclusive one. This presumption of admissibility of evidence is a rebuttable one, and if an assessee is able to demonstrate with the help of some material that such admission was either mistaken, untrue or based on misconception of facts, then solely on the basis of such admission no addition is required to be made. It is true that admission being declaration against an interest are good evidence, but they are not conclusive, and a party is always at liberty to withdraw the admission by demonstrating that they are either mistaken or untrue. In law, the retracted confession even may form the legal basis of admission, if the AO is satisfied that it was true and was voluntarily made. But the basing the addition on a retracted declaration solely would not be safe. It is not a strict rule of law, but only rule of prudence. As a general rule, it is unsafe to rely upon a retracted confession without corroborative evidence. Due to this grey situation, CBDT has issued Circular No.286/2/2003 prohibiting the departmental officials from taking confession in the search. The CBDT is of the view that often the officials used to obtain confessions from the assessee and stop further recovery of the material. Such confessions have been retracted and then the addition could not withstand the scrutiny of the higher appellate authority, because no material was found supporting such addition.

14. In the light of the above, let us examine the facts. The stand of the assessee before the AO was that no incriminating material was found. His accountant was forced to write certain notings on a piece of paper and it was treated as expenditure out of books. This stand of the assessee has been rejected by both the Revenue authorities on the ground that (a) the assessee is being regularly assessed to tax, and well conversant with the income-tax proceedings, (b) he is seasoned businessman and could not come under the pressure of income-tax authorities during the course of search and agreeing for noting certain details on a piece of paper, and then admitting them, (c) the assessee has filed affidavit after 25 months of search, and not brought it to the notice of higher authorities. To our mind, reasoning given by the ld.Revenue authorities are not sufficient for making addition of Rs.80,69,186/- in the hands of the assessee. The finding of the ld.CIT(A) is that the alleged affidavit is being filed after 25 months i.e. before the AO and not before the officer who have recorded his statement or senior officers. It is pertinent to observe that after search nothing remained pending for adjudication before the investigating authorities. Their role is to investigate the assessee and collect material and pass on to the AO concerned. They did not pass any order which can be executed for effecting the recovery of taxes. Thus, the executable  order for making any assessee liable to pay tax is the assessment order. The role of the AO is of a quasi-judicial officer who prosecute as well as adjudicate. Therefore, the right forum before whom an objection can be made is the AO. If some proceedings remained open before the investigation wing, and their adjudication give rises to refund of tax or collection of tax, probably, the Revenue authorities would be justified in making such Passage of time before passing of the assessment order would not legalise any illegality. If something has been inherently gone wrong, at the time of search, then during the assessment proceedings, that facts should have been ascertained by the AO. It was for the AO to call for independent witness as well as accountant of the assessee in support of the report of the investigation wing. Onus is not upon the assessee. It is the AO who has to first establish that some undisclosed expenditure was incurred by the assessee and details recorded to that were found. On the basis of simple declaration even under section 132(4) addition cannot be made. Revenue authorities have failed to carry out this inquiry, and therefore, after relying upon the decision of Hon’ble jurisdictional High Court in the case of CIT Vs. Maulikkumar K. Shah, and K.P.M. Nair Vs. ACIT, we do not have any hesitation that addition is not sustainable. We allow third ground of appeal and delete addition of Rs.80,69,186/-.

15. Ground Nos.5 and 6 are general grounds of appeal, and did not call for recording of any finding, hence,rejected.

16. In ground no.7, the assessee has challenged levy of interest under sections 234B, 234C and 234D. It is consequential in nature and

17. In Ground No.8 the assessee has challenged initiation of penalty proceedings. To our mind, it is a premature plea in the quantum appeal, and hence, it is rejected.

18. In Ground no.4 assessee has pleaded that the ld.CIT(A) has erred in rejecting his application under rule 46A for permission to produce additional evidence. Except arguments nothing has been produced before us as to what is the nature of additional evidence, and how the assessee was prevented by the AO for not producing such evidence during the course of assessment proceedings. In other words, the assessee failed to demonstrate applicability of conditions enumerated in clause (a) to (d) of sub-rule (1) of Rule 46A. Hence, this ground of appeal is rejected.

19. In the result, appeal of the assessee is partly allowed.

20. Now we take ITA 388/Rjt/2013.

21. In this appeal, grievance of the assessee is that the ld.CIT(A) has erred in confirming the penalty of Rs.28,30,000/- imposed under section 271(1)(c) of the

22. We find that sub-clause (iii) of section 271(1)(c) provides mechanism for quantification of penalty. It contemplates that the assessee would be directed to pay a sum in addition to taxes, if any, payable by him, which shall not be less than , but which shall not exceed three times the amount of tax sought to be evaded by reason of concealment of income or furnishing of inaccurate particulars of income. In other words, the quantification of the penalty is depended upon the addition made to the income of the assessee. In the present case, we  have deleted this addition in the quantum proceedings, as discussed hereinabove paragraphs, and therefore penalty under section 271(1)(c) of the Act has not limb to stand, which is hereby cancelled, and the appeal of the assessee is allowed.

ITA No.715/RJT/2010 – A.Y.2007-08

 22. In ground no.1 and 2, assessee has pleaded that the ld.CIT(A) has erred in confirming the assessment order passed by the AO under section 153A of  the Income Tax Act. According to the assessee, the AO has erred in assuming jurisdiction under section 153A for passing impugned assessment order. This aspect has been considered by us in the first opening part of this order. We will deal with other issues in the light of our finding recorded in the opening part of the order. If we peruse the record in the light of our discussion made, then it would reveal that in this year during the course of search a cash of Rs.11,25,536/- was found; out of which cash balance of Rs.1,25,480/- was available in the books. Remaining cannot be explained, and the assessee has admitted Rs.10 lakhs as his undisclosed income. Therefore, there was a material found during the course of search authorizing the AO to take cognizance under section 153A. Accordingly, both the grounds are rejected.

23. In ground no.3, the assessee has pleaded that the ld.CIT(A) has erred in confirming the addition of Rs.5.00

24. Brief facts of the case are that FDR of Rs.5.00 lakhs was found. The AO has directed the assessee to explain the source of Rs.5 lakhs. The assessee has contended that this FDR belongs to M/s.Kenson Motor Pvt.Ltd. and this also appeared in the balance sheet of said company. The Revenue  has rejected the explanation of the assessee on the ground that FDR was in the name of the assessee and not in the name of the

25. With the assistance of the ld.representatives, we have gone through the record carefully. It is pertinent to observe that for the purpose of the assessment order under section 153A, addition could be made only on the basis of seized material. If the FDR is in the name of the assessee, but it was also shown as investment in the company and reflected in the balance, then it was brought to the notice of the Department. This fact ought to have been verified before making addition in the hands of the assessee. Therefore, we  deem it appropriate to set aside this issue to the file of the AO for limited purpose that the ld.AO shall call for details from Kenson Motor P.Ltd. and find out whether the company has financed the purchases of this FDR and has accounted in its books of accounts. If it is found that the company has not financed it, then FDR stands in the name of two persons and to the extent share of the assessee is there, addition be made to that extent. In other words, according to the assessee, it is in the name of Shri Rajeshbhai, and therefore, the addition be restricted to 50% of Rs.5,00,000/-. The ld.AO shall verify this fact, and re-adjudicate the issue after hearing the assessee.

26. In the next ground of appeal, grievance of the assessee is that the ld.CIT(A) has erred in confirming the addition of Rs.10

27. Brief facts of the case are that during the course of search, a sum of Rs.11,25,536/- was found in cash. As per the books of accounts, total cash balance available on the date of search was Rs.1,25,480/-, and the ld.AO has added balance of Rs.10 lakhs as unaccounted income of the assessee. Neither before the CIT(A) nor before us, the assessee has demonstrated source of this cash. No submission has been made in this behalf even in the synopsis submitted before us. The only ground raised by the assessee that this addition has been made on the basis of the statement recorded under section 132(4), and therefore the addition is not sustainable. We find that addition is not based only on the basis of the statement, rather corroborated with the recovery of cash at the time of search, which remained unexplained. Therefore, the ld.CIT(A) has rightly confirmed the addition. This ground of appeal is rejected.

28. In the next ground of appeal, grievance of the assessee is that the ld.CIT(A)has erred in confirming the addition of 9,000/-.

29. Finding of the AO qua this addition of Rs.9,000/- reads as under:

“(8.0) It is also seen that, the assessee has shown rent receipt of Rs 30,000/- from Kenson Sales Corporation. However, in spite of repeated reminders, the assessee has not furnished books of accounts like balance sheet, profit and loss a/c, capital a/c etc. Absence of books of accounts, house property income of Rs. 30,000/- is treated as unexplained cash credit u/s 68 of the IT Act and added back in the income of the assessee. Since the assessee has already shown a sum of Rs 21,000/- (after claiming standard deduction of 30% from gross receipts), the difference of Rs 9,000 is being added here. Penalty proceedings u/s 271(1 )(C) of the Act is initiated for concealment of income.”

 30. The ld.CIT(A) has confirmed the addition of Rs.9,000/- on the ground that the assessee has not shown from which property this rental income was received. The stand of the assessee is that since this is the assessment order framed under section 153A, therefore, no addition ought to be made without supporting of any seized material. We do not find any merit in the contention of the ld.counsel for the assessee, because this search was conducted on 11.10.206, and this is a regular as well as search assessment year. In this year, the AO can explore other items of income required to be assessed in the regular assessment. Though, we accept alternative contention of the assessee, because, we have already assessed Rs.10 lakhs on account of unexplained cash available with the assessee. The AO is directed to give telescopic benefit of this Rs.30,000/- out of Rs.10 lakhs assessed in this year. The reason for  this direction is that the AO has assessed it on account of unexplained credit in the books. This ground of appeal is partly

31. No specific arguments have been advanced by the assessee on other grounds, hence, appeal of the assessee is partly allowed.

32. Now we take ITA 391/Ahd/2013.

33. The grievance of the assessee in this appeal is that the ld.CIT(A) has erred in confirming the penalty of Rs.3,40,000/- imposed by the AO under section 271(1)(c) of the Act on addition of Rs.10,09,000/- made under section 68 of the Act.

34. Brief facts of the case are that during the course of search cash amounting to Rs.11,25,536/- was found whereas cash balance as per books of the concern was Rs.1,25,480/-. The assessee could not give any explanation about the cash of Rs.10 lakhs which was added as unexplained cash. Apart from above, he further made an addition of Rs.9,000/- on account of unexplained income from the property. These addition have been confirmed by us while deciding the quantum appeal of the assessee in ITA No.715/RJT/2010. Appeal to the CIT(A) did not bring any relief to the assessee.

35. With the assistance of the ld.CIT-DR, we have gone through the submissions filed by the assessee. Section 271(1)(c) of the Income Tax Act, 1961 has direct bearing on the controversy. Therefore, it is pertinent to take note of the section.

“271. Failure to furnish returns, comply with notices, concealment of income, etc. 

The Assessing Officer or the Commissioner (Appeals) or the CIT in the course of any proceedings under this Act, is satisfied that any person

(a) and (b)** ** **

(c) has concealed the particulars of his income or furnished inaccurate particulars of such income.

He may direct that such person shall pay by way of penalty.

(i)and (Income-tax Officer,) ** **  ** 

(iii) in the cases referred to in Clause (c) or Clause (d), in addition to tax, if any, payable by him, a sum which shall not be less than, but which shall not exceed three times, the amount of tax sought to be evaded by reason of the concealment of particulars of his income or fringe benefit the furnishing of inaccurate particulars of such income or fringe benefits:

Explanation 1- Where in respect of any facts material to the computation of the total income of any person under this Act, 

(A) Such person fails to offer an explanation or offers an explanation which is found by the Assessing Officer or the Commissioner (Appeals) or the CIT to be false, or

(B) such person offers an explanation which he is not able to substantiate and fails to prove that such explanation is bona fide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him, then, the amount added or disallowed in computing the total income or such person as a result thereof shall, for the purposes of Clause (c) of this sub- section, be deemed to represent the income in respect of which particulars have been ”

36. A bare perusal of this section would reveal that for visiting any assessee with the penalty, the Assessing Officer or the Learned CIT(Appeals) during the course of any proceedings before them should be satisfied, that the assessee has; (i) concealed his income or furnished inaccurate particulars of income. As far as the quantification of the penalty is concerned, the penalty imposed under this section can range in between 100% to 300% of the tax sought to be evaded by the assessee, as a result of such concealment of income or furnishing inaccurate particulars. The other most important features of this section is deeming provisions regarding concealment of income. The section not only covered the situation in which the assessee has concealed the income or furnished inaccurate particulars, in certain situation, even without there being anything to indicate so, statutory deeming fiction for concealment of income comes into play. This deeming fiction, by way of Explanation I to section 271(1)(c) postulates two situations; (a) first whether in respect of any facts material to the computation of the total income under the provisions of the Act, the assessee fails to offer an explanation or the explanation offered by the assessee is found to be false by the Assessing Officer or Learned CIT(Appeal); and, (b) where in respect of any fact, material to the computation of total income under the provisions of the Act, the assessee is not able to substantiate the explanation and the assessee fails, to prove that such explanation is bona fide and that the assessee had disclosed all the facts relating to the same and material to the computation of the total income. Under first situation, the deeming fiction would come to play if the assessee failed to give any explanation with respect to any fact material to the computation of total income or by action of the Assessing Officer or the Learned CIT(Appeals) by giving a categorical finding to the effect that explanation given by the assessee is false. In the second situation, the deeming fiction would come to play by the failure of the assessee to substantiate his explanation in respect of any fact material to the computation of total income and in addition to this the assessee is not able to prove that such explanation was given bona fide and all the facts relating to the same and material to the computation of the total income have been disclosed by the assessee. These two situations provided in Explanation 1 appended to section 271(1)(c) makes it clear that that when this deeming fiction comes into play in the above two situations then the related addition or disallowance in computing the total income of the assessee for the purpose of section 271(1)(c) would be deemed to be representing the income in respect of which inaccurate particulars have been furnished.

36. In the light of the above, let us examine the facts of present case. Perusal of the record would indicate that cash of Rs.10 lakhs was found which has not been accounted in the books. He could not give any explanation even in the penalty proceedings. As far as the addition of Rs.9,000/- is concerned, the assessee has shown rental income from Kenson Sales Corporation. The stand of the assessee has not been accepted by the AO. The assessee has given an explanation that he has rental income, but stand of the assessee was not accepted. This explanation was not found to be false by the AO. Therefore, on the addition of Rs.9,000/- no penalty be imposed upon the assessee. However, the ld.AO to calculate penalty imposable upon the assessee only on addition of Rs.10,00,000/-. The appeal of the assessee is partly allowed.

37. Now we take up ITA 714/RJT/2010.

38. In this year, the assessee has taken eight grounds of appeal. Out of that ground no.1 and 2, the assessee has challenged invocation of jurisdiction under section 153A of the Act at the end of the AO, whereas in ground no.3, the assessee has challenged addition of Rs.4,29,470/-. The assessee has disclosed agriculture income of Rs.4,49,470/- which was not believed by the AO, and addition under section 68 of the Act has been made. The assessee has shown rental income which has not been accepted by the AO, and he made addition of Rs.1,75,283/-. Confirmation of this addition has been challenged under Ground 4.

39. With the assistance of the ld.CIT-DR, we have gone through the record carefully. At the cost of repetition, we would like to reiterate eight propositions laid down by the Hon’ble Delhi High Court in the case of Kabul Chawla (supra) expounding the scope of section 153A, which reads as under:

i.  Once a search takes place under Section 132 of the Act, notice under Section 153 A(1) will have to be mandatorily issued to the person searched requiring him to file returns for six AYs immediately preceding the previous year relevant to the AY in which the search takes place.

ii. Assessments and reassessments pending on the date of the search shall abate. The total income for such AYs will have to be computed by the AOs as a fresh

iii. The AO will exercise normal assessment powers in respect of the six years previous to the relevant AY in which the search takes place. The AO has the power to assess and reassess the ‘total income’ of the aforementioned six years in separate assessment orders for each of the six years. In other words there will be only one assessment order in respect of each of the six AYs “in which both the disclosed and the undisclosed income would be brought to tax”.

iv. Although Section 153 A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search material or information available with the AO which can be related to the evidence found, it does not mean that the assessment “can be arbitrary or made without any relevance or nexus with the seized material. Obviously an assessment has to be made under this Section only on the basis of seized “

v. In absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word ‘assess’ in Section 153 A is relatable to abated proceedings (i.e. those pending on the date of search) and the word ‘reassess’ to completed assessment proceedings.

vi. Insofar as pending assessments are concerned, the jurisdiction to make the original assessment and the assessment under Section 153A merges into one. Only one assessment shall be made separately for each AY on the basis of the findings of the search and any other material existing or brought on the record of the AO.

vii. Completed assessments can be interfered with by the AO while making the assessment under Section 153 A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original ” 

40. In the light of the above, let us peruse the facts of present assessment year. Search was carried out on 11.12.2006. Time limit to issue notice under section 143(2) on the original return of income in the Asstt.Year 2006-07 was not expired till search has taken place. Thus, the assessment in this year has to be termed as not attained finality. It has abated, and fresh assessment under section 153A has to be passed. No doubt the AO was not possessing any incriminating material for making addition. In such situation, he could determine the taxable income according to the regular books of accounts. He has not made any addition separately, which is associated with search. It is  the assessee who has shown agriculture income and rental income for the first time in response to notice under section 153A. Therefore, these issues were required to be examined while re-assessing the income for this assessment year as per section 153A. Thus, we do not find any merit in ground no.1 and  2 raised by the assessee. They are rejected.

41. As far as ground no.3 and 4 are concerned, we find that the assessee has disclosed agriculture income, but could not substantiate that fact. Therefore, the AO has added a sum of Rs.4,29,470/- under section 68 of the Act. On an analysis of the impugned order, we are of the view that this issue deserves to be set aside to the file of the AO because the AO has not called  for the land holding possessed by the assessee. It is to be ascertained whether the assessee is having any agriculture land; if yes, whether it is cultivatable or barren land, after calling from the land record, the AO should determine whether the assessee has any agriculture income or not.

42. As far as rental income shown by the assessee is concerned, the AO has not discussed this issue in detail. A perusal of the CIT(A)’s order would indicate that building from which rental income is being claimed, owned by seven persons. Upto and unless actual documents exhibiting ownership of the building, and how rental income is being recognized in the hands of the assessee is ascertained, it is not advisable to make addition under section 68. Therefore, we deem it appropriate to set aside both orders to the file of the AO for re-adjudication. The ld.AO shall call for original rent agreement and also ascertain who is owner of the alleged building, and how the rental income is being received in the hands of the assessee. With the above observation, both the grounds are allowed for statistical purpse.

43. In ground no.7, the assessee has challenged charging of interest under sections 234B/C/D. It is consequential in nature.

44. In the result, appeal of the assessee is partly allowed for statistical purpose

45. Now we take ITA No.390/Ahd/2013. In this appeal grievance of the assessee is that the ld.CIT(A) has erred in confirming penalty of Rs.1,50,000/- which was imposed by the AO under section 271(1)(c) of the Act. The ld.AO has imposed this penalty qua addition made under section 68, which were otherwise shown by the assessee as agriculture income and rental income. Since both the additions have been set-aide by us to the file of the ld.AO for re-adjudication, therefore, we set aside penalty order also and remit it back to the file of the AO. The ld.AO shall decide whether to levy or not to levy penalty under section 271(1)(c) of the Act after adjudication of quantum addition. This appeal is also allowed for statistical purpose.

46. In the result, all the appeals of the assessee are partly allowed.

Order pronounced in the Court on 21st October, 2019 at Ahmedabad.

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