Reopening assessment under Section 153A denied without incriminating evidence for the relevant year

Commissioner of Income Tax –I Versus Jayaben Ratilal Sorathia

Commissioner of Income Tax –I Versus Jayaben Ratilal Sorathia - 2013:GUJHC:15039 - DB

ISSUES:

Whether addition under section 153A of the Income Tax Act can be made for undisclosed on-money payments in respect of a particular assessment year when no direct evidence for that year is found, despite evidence of on-money payments being found and declared for the same project in other years'Whether the decision of the Andhra Pradesh High Court in the case of Gopal Lal Bhadruka Vs. DCIT is applicable when the incriminating evidence relates only to the immediate succeeding year and not the year under assessment'Whether the Assessing Officer can make estimated additions for transactions dated 01/04/2005 but not for transactions dated 31/03/2005, when both transactions pertain to the same real estate project, considering the importance of the project over the specific year of transaction?

RULINGS / HOLDINGS:

The ITAT was justified in holding that 'no addition can be for on money payment in respect of year under consideration u/s. 153A of the Act just on the ground that no evidence in regard of on money payment for sale of plot in year under consideration was found,' despite evidence of on-money for other years, because 'on the basis of evidences regarding on-money receipt on the subsequent years without any direct material or corroborating material in support of receipt of on money in a preceding year... addition made by AO cannot be sustained.'The ITAT correctly held that the decision of the Andhra Pradesh High Court in Gopal Lal Bhadruka Vs. DCIT 'was not applicable in this case, just because evidence found was of immediate succeeding year,' as there must be incriminating material available with respect to the particular assessment year to justify reopening under section 153A.The ITAT's interpretation that the AO can make estimated addition for a transaction on 01/04/2005 but not for 31/03/2005, despite both being part of the same project, was upheld, emphasizing that 'the project commands extra price in the market and therefore, it may be possible that in the first year... the assessee sold some of the plots on a lower prices as declared by the assessee commanded extra prices and received same in the form of on-money.'

RATIONALE:

The Court applied the provisions of section 153A and 153C of the Income Tax Act, which allow reopening of assessments for six preceding years following a search, but require incriminating material specific to the assessment year under consideration to justify additions.The Court relied on the principle that evidence of undisclosed income or on-money in subsequent years cannot be extrapolated to earlier years without direct or corroborative material, especially given that land prices generally rise over time and transaction values may legitimately differ year to year.The Court distinguished the Andhra Pradesh High Court decision on the basis that in that case, the incriminating material pertained to the same assessment year, whereas in the present case, no such material was found for the year under consideration.No dissent or doctrinal shift was indicated; the Court upheld the ITAT's reasoned approach and confirmed that no substantial question of law arose warranting interference.