2017 (5) TMI 992 - HC - Income Tax

High Court upholds ITAT decision on tax assessment under Section 153C, stresses need for concrete evidence

The High Court dismissed the Revenue's appeals, affirming the ITAT's decision that the initiation of proceedings under Section 153C was invalid and the ... Initiation of proceedings against the Assessee u/s 153C - cash payments from unaccounted sources - whether document belonged to the Assessee? - Held that:- It is nobody’s case other than the Revenue that the document found in the premises of Mr. Lalit Modi belongs to the Assessee. Mr. Shivpuri referred to Section 292 C of the Act for the purposes of drawing two presumptions (i) the one contained in Section 292 C (1) (i) to the effect that the document found in possession of a person should be presumed to belong to such person. As far as this is concerned, clearly, since the document was found in possession of Mr. Modi, the presumption, if at all, is attracted only qua Mr. Lalit Modi and not the Assessee herein. There is, therefore, nothing to contradict the categorical finding of the ITAT that the document which formed the main basis for initiation of the proceedings under Section 153C of the Act does not belong to the Assessee. One of the principal conditions for attracting Section 153C of the Act is, therefore, not fulfilled in the present case. The detailed interrogation of Mr. Modi revealed the source of the document and the fact that Mr. Modi was not the author of the document. Mr. Modi had suggested that it was some other broker who had given him the said document as a ‘proposal’. There appears to have been no attempt made by the AO to enquire into the matter further to find out if at all there was any such other broker who had prepared the document. Further, there is no attempt also made to ascertain whether the prevalent market value of the space purchased by the Assessee could at all fetch the value indicated in the document which is ₹ 32,85,37,354. This was too fundamental an issue to be left un-investigated. The AO appears to have proceeded purely on conjectures as regards what the document has stated without noticing the internal contradictions and inconsistencies. For instance, the document talks of rent payable for a period from 2006 onwards where in fact even according to the Revenue the Assessee purchased the property on 13th May, 2009. The shifting of the burden on the Assessee without making these basic enquiries to unearth the truth of the document could not have been accepted and was rightly commented upon by the ITAT. The attempt at making additions on the basis of Annexure A-1, without any further investigation on the above lines, is bound to be rendered unsustainable in law. Therefore, even as regards the merits of the additions made by the AO, the Court funds no error having been committed by the ITAT in deleting them. - Decided in favour of assessee. Issues Involved:1. Legality of initiation of proceedings under Section 153C of the Income Tax Act, 1961.2. Validity of additions made by the Assessing Officer (AO) under various heads.Detailed Analysis:1. Legality of Initiation of Proceedings under Section 153C:The primary issue was whether the Income Tax Appellate Tribunal (ITAT) erred in setting aside the initiation of proceedings against the Assessee under Section 153C of the Income Tax Act, 1961. The Revenue contended that the document found during the search at Mr. Lalit Modi’s premises belonged to the Assessee, thereby justifying the initiation of proceedings. However, the ITAT and the High Court found that the document did not 'belong' to the Assessee. The court noted that the document, a proposal from another broker, was found with Mr. Lalit Modi and not directly linked to the Assessee. The court referenced the decision in Pepsico India Holding Ltd. v. ACIT, which clarified that mere possession of a document by a third party does not imply ownership by the Assessee. The court concluded that the necessary condition for invoking Section 153C was not met, as the document did not belong to the Assessee.2. Validity of Additions Made by the Assessing Officer:The second issue was whether the ITAT erred in deleting the additions made by the AO, which included:- Rs. 16,42,68,522 as cash payments from unaccounted sources.- Rs. 39,65,106 on account of disallowance of payment of sinking funds.- Rs. 29,73,830 on account of disallowance of maintenance security.- Rs. 65,70,747 on account of disallowance of commission.The AO based these additions on a document found during the search, which indicated a higher total cost for the property than what was recorded in the books. The Assessee provided a confirmation from Mr. Lalit Modi stating that the document was a draft proposal and not related to any actual transaction. The ITAT found that the AO did not provide sufficient evidence to prove that the document belonged to the Assessee or that the transactions mentioned were actual and not merely proposals. The court highlighted the lack of further investigation by the AO into the authenticity and source of the document. The court also noted inconsistencies in the document, such as references to rent payments from 2006 for a property purchased in 2009. Consequently, the court upheld the ITAT’s decision to delete the additions, finding them unsustainable in law.Conclusion:The High Court dismissed the Revenue's appeals, affirming the ITAT's decision that the initiation of proceedings under Section 153C was invalid and the additions made by the AO were unsustainable. The court emphasized the importance of concrete evidence and proper investigation in tax assessments, particularly when invoking special provisions like Section 153C.