2016 (5) TMI 60 - AT - Income Tax

Tribunal rules in favor of assessee, finding Assessing Officer's additions illegal. Emphasizes need for incriminating material.

Chhaya P. Gangar Versus Deputy Commissioner of Income-Tax

The Tribunal ruled in favor of the assessee, holding that additions made by the Assessing Officer (AO) were illegal and beyond jurisdiction due to the ... Validity of assessment u/s 153C - addition has been made in the absence of any seized documents - Held that:- From the orders of the lower authorities are that during the search conducted at the residence of Shri Prakash H. Savla, documents related to the firm, M/s. Mahavir Builders, were found and seized. Subsequently, Shri Prakash H. Savla and Shri Pankaj Gangar (husband of the assessee) gave some declarations offering undisclosed income of some connected persons including the assessee, as per the chart given in the order of the learned Commissioner of Income-tax (Appeals), wherein an amount of ₹ 24.30 lakhs has been offered in the name of the assessee for the assessment year 2007-08 on account of some undisclosed share purchase transactions. Subsequently, notices were issued to the assessee by the Assessing Officer under section 153C, in pursuance of which the assessee filed the return on August 28, 2009. In the return filed for the impugned assessment year, no disclosure was made by the assessee, as the same was made only for the assessment year 2007-08. During the course of assessment proceedings the Assessing Officer made additions of ₹ 2,00,000 on account of gift received by the assessee. The admitted facts on record are that the addition has been made in the absence of any seized documents. It is noted that the declaration was made by the assessee only for the assessment year 2007-08, and has been accepted as such by the Department. The facts on record suggest that nothing incriminating has been found indicating any undisclosed income for the year under consideration. Thus, the primary issue to be decided here by us is that whether an addition could be made under the law by the Assessing Officer in the absence of, or unconnected to, any material found during the course of search. It is noted by us that this issue is no more res-integra. Honourable co-ordinate Bench in the case of Vimal Kumar Rathi [2016 (1) TMI 215 - ITAT MUMBAI] held that no addition can be made in the absence of any adverse material found during the search. - Decided in favour of assessee Telescoping of the unaccounted brokerage and commission income against the amount offered in the return by the assessee - Held that:- In the assessment proceedings before the Assessing Officer, the assessee claimed that the entry of commission and brokerage of ₹ 6,00,000 received in cash is covered in the declaration made on account of amount spent on renovation of house of the assessee. This claim was not accepted by the Assessing Officer on the ground that no co-relation could be shown between the two by the assessee. But the learned Commissioner of Income-tax (Appeals) accepted it and granted the benefit of telescoping. It is noted by us that no reasoning has been given by the learned Commissioner of Income-tax (Appeals) as to how and in what manner the amount of ₹ 6,00,000 earned on account of some brokerage and commission income is covered within the offer of ₹ 30 lakhs made by the assessee. The learned Commissioner of Income-tax (Appeals) has discussed in detail the entire law on telescoping but failed to discuss that how and in what manner, the impugned amount was covered in the income offered by the assessee. We find that the grievance of the Revenue that the assessee was not able to establish any nexus between the two amounts is justified. We further find that no proper reasoning on facts has been given by the learned Commissioner of Income-tax (Appeals) while giving the benefit of tele scoping. Thus, the action of the learned Commissioner of Income-tax (Appeals) in deleting this addition is reversed and addition made by the learned Assessing Officer on this ground is upheld. - Decided against assessee Undisclosed expenditure under section 69C on the basis of jottings in seized material - Held that:- Scribbling has been made on page 16 of the aforesaid annexure GS4-A2, thus this document is half a dumb and half a speaking document. Before it could be used for making addition in the hands of the assessee, there was a legal obligation on the shoulders of the Assessing Officer, to make it as fully speaking document since he wanted to make addition on the basis of this document. There are no indications or observations in the assessment order showing that whether the Assessing Officer made any efforts to contact Mr. Arunbhai. It has not even been mentioned in the assessment order that whether he asked the asses see to produce Mr. Arunbhai. It is not even coming out that whether this amount has been received or given or whether this amount shall be received or shall be given. Whether it is income or expense ? Nothing is coming out from the perusal of this document, and, therefore, in our considered view, no addition could have been made simply relying on the basis of this document that too without bringing any material on record to explain and substantiate this document. Therefore, addition was wrongly made by the Assessing Officer, and, therefore, the same is hereby deleted.- Decided in favour of assessee Addition on account of unsecured loan - Held that:- The assessee has discharged its onus under section 68. Even otherwise, the impugned addition was made in the absence of incriminating material, and keeping in view all the facts and circumstances of the case, the addition being illegal, has rightly been deleted by the learned Commissioner of Income-tax (Appeals) - Decided in favour of assessee Unexplained jewellery treated as unexplained investment - Held that:- The learned Commissioner of Income-tax (Appeals) has given detailed findings accepting the claim of the assessee that the impugned investment in jewellery is covered under the offer made by the assessee under section 132(4) of ₹ 31,50,000 on account of diamond jewellery on the basis of seized documents. The learned Commissioner of Income-tax (Appeals) has taken holistic view of the matter while accepting the claim of the assessee. Before us nothing contrary could be brought on record by the learned Commissioner of Income-tax-Departmental representative and the reasons/findings given by the learned Commissioner of Income-tax (Appeals) could not be controverted. Therefore, keeping in view all the facts and circumstances of the case, we find that the order of the learned Commissioner of Income-tax (Appeals) is in accordance with law and facts, and, therefore, no interference is called therein - Decided in favour of assessee Issues Involved:1. Jurisdiction under Section 153C.2. Addition of unexplained cash credit.3. Delay in filing cross objections.4. Treatment of capital gains as income from other sources.5. Addition of unexplained cash receipts.6. Addition of unexplained loans under Section 68.7. Addition of unexplained jewelry under Section 69B.8. Telescoping of unaccounted income.Detailed Analysis:1. Jurisdiction under Section 153C:The primary issue was whether the Assessing Officer (AO) had jurisdiction under Section 153C to make additions in the absence of incriminating material found during the search. The Tribunal referred to several judgments, including *Vimal Kumar Rathi v. Deputy CIT* and *CIT v. Continental Warehousing Corporation (Nhava Sheva) Ltd.*, which held that no additions could be made under Section 153A/153C without incriminating material. The Tribunal concluded that the addition of Rs. 2,00,000 as unexplained cash credit was illegal and deleted it.2. Addition of unexplained cash credit:The AO treated a gift of Rs. 2,00,000 as unexplained cash credit. The Tribunal found that the addition was made without any incriminating material found during the search. It was held that the addition was beyond the jurisdiction and contrary to law, and thus, the addition was deleted.3. Delay in filing cross objections:The Tribunal condoned the delay in filing cross objections by the assessee, considering the reasons provided, including lack of proper professional advice. The cross objections were admitted for adjudication.4. Treatment of capital gains as income from other sources:The AO treated long-term capital gains from the sale of shares as income from other sources. The Tribunal found that the addition was made without any incriminating material found during the search. Following the decision for the assessment year 2003-04, the Tribunal held that the addition was not sustainable and directed its deletion.5. Addition of unexplained cash receipts:The AO added Rs. 1,50,000 as unexplained cash receipts, assuming it to be rental income. The Tribunal found that the entries in the seized documents were related to payments and receipts and were already included in the income declared by the assessee. The Tribunal upheld the deletion of the addition by the Commissioner of Income-tax (Appeals).6. Addition of unexplained loans under Section 68:The AO added Rs. 4,25,000 as unexplained loans under Section 68. The Tribunal found that the addition was made without any incriminating material. It held that the addition was beyond jurisdiction and rightly deleted by the Commissioner of Income-tax (Appeals).7. Addition of unexplained jewelry under Section 69B:The AO added Rs. 16,58,750 as unexplained investment in jewelry. The Tribunal found that the jewelry was covered under the declaration made by the assessee under Section 132(4) and accepted by the Department. The Tribunal upheld the deletion of the addition by the Commissioner of Income-tax (Appeals).8. Telescoping of unaccounted income:The AO added Rs. 6,00,000 as unaccounted brokerage and commission income. The Tribunal found that the Commissioner of Income-tax (Appeals) granted the benefit of telescoping without proper reasoning. The Tribunal reversed this decision and upheld the addition made by the AO.Conclusion:The Tribunal allowed the appeals of the assessee, deleted the additions made by the AO, and dismissed the appeals of the Revenue where applicable. The decisions were based on the absence of incriminating material and adherence to legal precedents.