2020 (12) TMI 54 - HC - Income Tax

High Court upholds Tribunal decision on tax appeals, citing lack of evidence and unjustified assessments.

The High Court dismissed the tax case appeals filed by the Revenue, confirming the Tribunal's decision. The Court found that the seized documents did not ... Assessment u/s 153C - necessity to establish the correlation the document-wise with the assessment years in question - CIT(A) and the Tribunal held that there was no material brought on record to prove the nexus between withdrawal of the amount from the bank account of the said Mr.T.John Rajasekhar and the deposits made in the bank accounts of Dr.Gurusankar, managing trustee of the assessee trust - HELD THAT:- Hon'ble Supreme Court in the case of CIT-III, Pune Vs. Sinhgad Technical Education Society [2017 (8) TMI 1298 - SUPREME COURT] wherein held that where loose papers found and seized from the residence of the President of the assessee, an educational institution, indicating capitation fees received by various institutions run by the assessee did not establish correlation document-wise with the assessment years in question, the notice issued under Section 153C of the Act has to be quashed. If we examine the case on hand, we find that the entire case is completely factual. We also find that the CIT(A) has done the factual exercise elaborately and the substantial portion of the order passed by the CIT(A) has been referred to and quoted by the Tribunal in the impugned common order. CIT(A) and the Tribunal held that there was no material brought on record to prove the nexus between withdrawal of the amount from the bank account of the said Mr.T.John Rajasekhar and the deposits made in the bank accounts of Dr.Gurusankar, managing trustee of the assessee trust. Further, the CIT(A) and the Tribunal noted that the said Mr.T.John Rajasekhar had not admitted that money was paid back to the managing trustee of the assessee trust. Furthermore, on facts, it was found that the materials seized did not indicate any inflation of purchase by the assessee trust and that the deposits in the bank account of the said Dr.Gurusankar stood explained. Tribunal rightly took note of the decision in the case of Sinhgad Technical Education Society [2017 (8) TMI 1298 - SUPREME COURT] that in proceedings under Section 153C of the Act, in the absence of any incriminating documents or evidence discovered during the course of search under Section 132 of the Act in the case of searched person against the assessee, the jurisdiction under the provisions of Section 153C of the Act cannot be assumed. CIT(A) allowed the appeals filed by the assessee as confirmed by the Tribunal. We hold that no question of law much less substantial question of law arises for consideration in these appeals. - Decided against revenue. Issues:1. Jurisdiction under Section 153C of the Income Tax Act, 19612. Denial of exemption under Section 11 of the Act3. Assessment based on seized documents and incriminating material4. Nexus between withdrawals and deposits in bank accounts5. Application before the Income Tax Settlement CommissionJurisdiction under Section 153C of the Income Tax Act:The Revenue filed appeals challenging the order made by the Income Tax Appellate Tribunal (ITAT) for the assessment years 2009-10 to 2015-16. The appeals raised substantial questions of law regarding the jurisdiction of the Assessing Officer under Section 153C of the Act. The High Court considered the legal position established by the Supreme Court in CIT-III, Pune Vs. Sinhgad Technical Education Society, emphasizing the necessity of establishing a correlation document-wise with the assessment years in question. The Court found that the seized documents did not establish a direct link with the relevant assessment years, leading to the quashing of the notice issued under Section 153C.Denial of Exemption under Section 11 of the Act:The case involved a charitable trust registered under Section 12AA of the Act. The Assessing Officer had denied exemption under Section 11 of the Act, which was challenged by the assessee in appeals before the Commissioner of Income Tax (Appeals) and subsequently before the Tribunal. The Tribunal and the CIT(A) found no material to prove the nexus between withdrawals and deposits in bank accounts, leading to the denial of exemption. The High Court upheld this finding, emphasizing the importance of factual evidence in determining eligibility for exemptions under Section 11.Assessment based on Seized Documents and Incriminating Material:A search conducted under Section 132 of the Act revealed alleged fund siphoning through inflation of expenses. Subsequently, assessments were completed under Section 143(3) read with Section 153C of the Act based on seized documents. However, the CIT(A) and the Tribunal found no substantial evidence to support the allegations of fund diversion or inflation of expenses. The High Court, after an elaborate hearing, concurred with the lower authorities' findings, emphasizing the lack of incriminating material to justify the assessments under Section 153C.Nexus between Withdrawals and Deposits in Bank Accounts:The case involved withdrawals by a supplier of medical equipment and deposits in the bank accounts of the managing trustee of the assessee trust. The CIT(A) and the Tribunal found no evidence indicating a direct nexus between the withdrawals and deposits. Additionally, the supplier's approach to the Income Tax Settlement Commission did not provide supporting evidence of fund return to the trust. The High Court, considering the factual findings and legal precedents, affirmed the lower authorities' decision to dismiss the Revenue's appeals.Application before the Income Tax Settlement Commission:The supplier of medical equipment approached the Income Tax Settlement Commission and disclosed additional income related to expenses. However, the Commissioner of Income Tax found no evidence of the returned funds to the trust. The Tribunal considered this aspect in line with the Supreme Court's decision in Sinhgad Technical Education Society, emphasizing the importance of incriminating documents or evidence to assume jurisdiction under Section 153C. The High Court, after a detailed analysis, upheld the Tribunal's decision and dismissed the Revenue's appeals.In conclusion, the High Court dismissed the tax case appeals filed by the Revenue, confirming the Tribunal's decision, as no substantial questions of law were found to arise from the factual and legal analysis presented in the case.