2013 (7) TMI 850 - HC - Income Tax

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

The HC held that reopening of assessment under section 153A for the relevant year was not justified due to lack of incriminating material relating to that ... Interpretation of provisions of section 153A of the Income Tax Act for reopening assessment - Tribunal deleted addition made by A.O. due to lack of evidence - Held that:- on the basis of search carried out in the premises of the son of the assessee and diary seized and on the basis of noting in the said diary, the assessee made disclosure for the A.Y. 2006-07 with respect to the sale transactions which took place during the A.Y. 2006-07 and applying same ratio and ratio relating to A.Y. 2006-07 and A.Y. 2007-08, the Assessing Officer determined the income for the A.Y. 2005-06 and considering the fact that the regular assessment was framed under section 143(3) and there was no any seized material with respect to A.Y. 2005-06, considering the aforesaid fact and observing that no incriminating material was found with respect to A.Y. 2005-06 and during the assessment, the Assessing Officer did not find any defect in the books of accounts maintained by the assessee and considering the fact that even no any material was found during the search relating to assessment year - Assessing Officer can reopen and/or reassess 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 - Decided against Revenue. 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.