2020 (11) TMI 208 - AT - Income Tax

Tribunal upholds search validity, rejects plea for Section 153C, directs fresh examination by AO.

The Tribunal upheld the validity of the search proceedings and notice under Section 153A, rejected the plea for proceedings under Section 153C, and ... Validity of notice issued u/s 153A - validity of search action - With regard to the validity of search proceedings, the Ld CIT(A) has held that he does not have jurisdiction to examine the said issue - HELD THAT:- Revenue has carried out search and seizure operations in the hands of M/s H.M. Constructions and in the hands of the assessee herein - both the assessee herein are partners of M/s H M Constructions - not shown to us that the assessee herein have different business premises distinct and separate from the premises of M/s H M Constructions. Hence it cannot be conclusively said that the incriminating documents were seized from a person other than the assessee herein. The details of seized record are given in the table - A perusal of the same would show that one seized record is numbered as A-1/HM/1 and the remaining records are numbered as M J Shivani/Scanned files 1/Doc. It is a known fact that the numbering of seized documents is done by search officials in order to identify the seized materials. Hence merely because the seized record has been numbered as “HM” does not necessarily mean that the same was seized from a different person. Though the assessee has raised this legal plea, no document was produced to substantiate this claim. Accordingly, for the reasons discussed above, we do not find any merit in the legal contentions raised by the assessee. Accordingly, we reject the same. AO has issued notice u/s 153A wherein the expression “assessee/reassess” is mentioned - Non-striking of inapplicable portion would result in non-application of mind by the AO and since it goes to the root of the matter, the penalty proceedings would get vitiated. In our view, the assessee cannot take support of this decision M/S MANJUNATHA COTTON AND GINNING FACTORY & OTHS., M/S. V.S. LAD & SONS, [2013 (7) TMI 620 - KARNATAKA HIGH COURT] and hence the contention of the assessee that non-striking of inapplicable portion in the expression “assess/reassess” would vitiate the assessment proceedings is liable to be rejected, as it does not go to the root of the matter. The provisions of sec.153A of the Act states that the assessment of six assessment years preceding the year of search would get reopened. Out of the six assessment years, assessment of some of the years would have been completed, while some of the years might not. Hence the provisions of sec.153A uses the expression ‘assess/reassess” and the very same expression has been used in the notice issued u/s 153A of the Act. In both the cases, the total income shall be determined by the assessing officer. Hence the assessee would be knowing that the assessment of a particular year is a case of new assessment or reassessment, as it depends upon facts of each assessment year. - contention of the assessee that non-striking of inapplicable portion in the expression “assess/reassess” would vitiate the assessment proceedings is liable to be rejected, as it does not go to the root of the matter. Addition relating to Vitsandra (das flowers) property, Ramagondanhalli property AND While field land - above said additions represent 50% of the undisclosed amount - HELD THAT:- It is an undisputed fact that the “agreement” was not signed by the buyers, meaning thereby, it is only an incomplete agreement. If the additional amount was really agreed to be ₹ 40.00 lakhs and only ₹ 20.00 lakhs was accounted in the books of account, any prudent business man would not show the same in the agreement at all. Hence, there is merit in the submission of the assessee that a sum of ₹ 20.00 lakhs only was paid as additional amount to the sellers. Assessee have rebutted the presumption with regard to this evidence. It is also pertinent to note that the assessing officer did not examine the sellers to find out the truth - no other material was brought on record to prove that the sum of ₹ 20.00 lakhs was paid by way of cash and the same has not been accounted in the books of accounts - explanations given by the assessee have to be accepted. Accordingly, we hold that the addition of ₹ 5.00 lakhs each sustained by Ld CIT(A) in the hands of the assessee herein are liable to be deleted. Accordingly, we set aside the orders passed by Ld CIT(A) on this issue and direct the AO to delete the addition of ₹ 5.00 lakhs each made in the hands of both the assessee in AY 2006-07. Ramagondanahalli property - assessee there is merit in the explanations given by the assessees and they have effectively rebutted the presumption regarding the impugned seized materials. A perusal of the assessment order would show that the assessees have accepted some of the unaccounted payments on the basis of evidences seized at the time of search, meaning thereby, the assessees have disputed the evidences, when the facts are against the presumptions drawn by the AO - AO did not make any enquiries from the sellers of the land in order to disprove the explanations given by the assessee - no other material was brought on record to prove that the impugned payments were made outside the the books of accounts. Hence, in the absence of any contrary material to disprove the submissions of the assessee the explanations given by the assessee have to be accepted. The surrounding circumstances and evidences, in our view, supports the explanations of the assessee - addition liable to be deleted. Property located at White filed - earlier noticed that the assessees have accepted the additions, whenever the payments were not accounted for, meaning thereby, the assessees have disputed the evidences, when the facts are against the presumptions drawn by the AO - AO did not make any enquiries from the Mr. Wilfred Nelson or Mr. N G Jaikumar in order to disprove the explanations given by the assessee. Further, no other material was brought on record to prove that the impugned payments were made outside the books of accounts. Hence, in the absence of any contrary material to disprove the submissions of the assessees, the explanations given by the assessees have to be accepted. The surrounding circumstances and evidences, in our view, supports the explanations of the assessees. Accordingly, we hold that the addition each sustained by Ld CIT(A) in the hands of the assessees herein are liable to be deleted. Treating the payments made outside books of accounts - HELD THAT:- AO has not taken any steps to verify the agreed consideration, payments made by way of cheques etc., mentioned in the receipts. Without establishing that other information available in the receipts are correct, it may not be proper to presume that the cash component alone has been paid under these receipts. As earlier noticed that the AO has made the addition by making observations relating to some other property, which fact would show that the AO has made the addition in a mechanical manner. Hence, we are of the view that the AO and Ld CIT(A) were not justified in making this addition. Accordingly, we set aside the orders passed by Ld CIT(A) on this issue and direct the AO to delete the addition. Disallowance of part of agricultural income declared by the assessee and assessing the same as income of the assessee from income from other sources - HELD THAT:- A perusal of the receipt No.1733 would show that is clearly stated therein that this receipt is to be destroyed, as another voucher no.1735 has been collected from Mrs. Vasantha Lakshmi. Hence, we agree with the contentions of the assessee that the receipt no.1733 is the temporary voucher and the same is replaced by voucher no.1735. Accordingly, we are of the view that no credence should be given to voucher no.1733, i.e., both voucher no.1733 and 1735 relates to the same transaction and hence only a sum of ₹ 20.00 lakhs has been given by the assessee to Mrs. Vasantha Lakshmi and Ms. Vidhya Lakshmi. Accordingly the tax authorities are not justified in taking the amount of transactions at ₹ 40.00 lakhs. The value of transactions under both the vouchers should be taken as ₹ 20.00 lakhs only. With regard to the transaction amount of ₹ 20.00 lakhs, it is the submission of the assessees that the same was paid for purchasing their property, but it did not go through. From the explanations given by the assessee as well as the discussions made by the tax authorities, it is not clear as to whether the assessee has explained the sources for payment of ₹ 20.00 lakhs. If the assessee has explained the sources, then no addition is not called for. Since there is lack of clarity on this issue, we restore this issue to the file of the AO in the case of both the assessees for examining the same afresh. Disallowance of part of agricultural income - HELD THAT:- Assessee have furnished a Statement showing sale value of agricultural produce and the expenses in support of the agricultural income declared by them. As observed by the AO, the assessee have not furnished various details called for by the AO, particularly the details of yield, quantity raised, selling price etc. There should not be any doubt that it is the responsibility of the assessee to prove the agricultural yield, realization etc., by furnishing cogent evidences. Mere furnishing of Statement may not be sufficient. At the same time, the AO also did not attempt to find out the average yield, average selling price etc., from the surrounding areas or from agricultural department. Thus, the AO has also made estimate without any basis. Thus the issue of agricultural income requires fresh examination in all the years. Appeals of the assessee are treated as partly allowed for statistical purposes. Issues Involved:1. Validity of search proceedings and notice issued under Section 153A.2. Additions based on seized materials and whether proceedings should have been initiated under Section 153C.3. Legal issue regarding the notice under Section 153A mentioning 'assess/reassess'.4. Merits of additions related to specific properties and transactions.5. Disallowance of part of agricultural income and its assessment as income from other sources.Detailed Analysis:1. Validity of Search Proceedings and Notice Issued under Section 153A:The assessees challenged the validity of the search action and the notice issued under Section 153A of the Income-tax Act. The CIT(A) ruled that it did not have jurisdiction to examine the validity of the search proceedings and rejected the grounds raised. The Tribunal upheld this decision, noting that the search and seizure operations were conducted on the premises of M/s H.M. Constructions, where the assessees were partners, and the assessees did not have separate business premises. Therefore, the provisions of Section 153A were validly invoked.2. Additions Based on Seized Materials and Section 153C:The assessees argued that the additions made by the AO should have been initiated under Section 153C, as the materials were seized from the premises of M/s H.M. Constructions. The Tribunal rejected this plea, stating that the search was conducted on both the assessees and M/s H.M. Constructions, and there was no clear evidence that the seized documents were from a different person. Therefore, the proceedings under Section 153A were deemed appropriate.3. Legal Issue Regarding Notice under Section 153A Mentioning 'Assess/Reassess':The assessees contended that the notice under Section 153A should specify whether the income is to be 'assessed' or 'reassessed'. The Tribunal found merit in the Department's argument that the expression 'assess/reassess' is used in Section 153A because it covers both scenarios—where assessments were completed and where they were not. The Tribunal held that the assessee would know whether it is a case of new assessment or reassessment based on the facts of each year. The decision in Manjunatha Cotton & Ginning Factory was distinguished as it pertained to penalty proceedings under Section 271(1)(c).4. Merits of Additions Related to Specific Properties and Transactions:- Vitsandra (Das Flowers) Property (AY 2006-07): The Tribunal deleted the addition of Rs. 5 lakhs each in the hands of both assessees, accepting the explanation that the additional amount of Rs. 20 lakhs mentioned in the agreement was not paid, as the agreement was not signed by the buyers.- Ramagondanahalli Property (AY 2006-07): The Tribunal deleted the addition of Rs. 11,80,625 each, accepting the explanation that the payments were made in 1995 and the receipts obtained in 2005 were for facilitating registration. The AO did not disprove the explanations or provide contrary evidence.- Whitefield Property (AY 2006-07): The Tribunal deleted the addition of Rs. 1,50,000 each, accepting the explanation that the receipt for Rs. 3 lakhs was part of the total consideration of Rs. 2 crores and was not actually paid due to incomplete documentation.- Receipts for Payments (AY 2008-09): The Tribunal deleted the addition of Rs. 1,45,000 each, noting that the receipts were drafts with corrections and the payments were part of the agreed consideration.- Receipts for Payments (AY 2011-12): The Tribunal found that the two vouchers (Nos. 1733 and 1735) related to the same transaction of Rs. 20 lakhs. The case was remanded to the AO to verify the sources of the payment.5. Disallowance of Part of Agricultural Income:The AO restricted the agricultural income to Rs. 10 lakhs for AYs 2009-10 to 2012-13 and Rs. 14 lakhs for AY 2013-14, citing lack of evidence for expenses and high productivity claims. The Tribunal noted that the assessees provided statements of income and expenses but lacked detailed evidence. The issue was remanded to the AO for fresh examination, directing the AO to consider average yield and selling price from surrounding areas or agricultural departments.Conclusion:The Tribunal partly allowed the appeals for statistical purposes, directing fresh examination of certain issues by the AO. The Tribunal upheld the validity of the search proceedings and the notice under Section 153A, rejected the plea for proceedings under Section 153C, and provided detailed rulings on the merits of specific additions and the disallowance of agricultural income.