2021 (11) TMI 561 - AT - Income Tax

Assessee's appeals partly allowed, revenue's appeals dismissed. Tribunal finds assessment for AY 2016-17 should be under section 153C.

The Tribunal partly allowed the assessee's appeals and dismissed the revenue's appeals. The Tribunal concluded that the assessment for AY 2016-17 should ... Validity of notice under Section 153C - Construction of the date of search for a person other than the one searched - Requirement of incriminating material for invoking Sections 153C/153A in non abated assessments - Additions based solely on Departmental Valuation Officer report - Reference to DVO under Section 142A requires cogent material or rejection of books of account - Application of Section 69B for undisclosed investments - Deletion of additions for unexplained cash in absence of corroboration - Allowance of rebate for difference between CPWD and local PWD rates and for self supervision in valuationValidity of notice under Section 153C - Construction of the date of search for a person other than the one searched - Whether the assessment for AY 2016-17 should have been treated as framed under section 153C read with section 143(3) (i.e., whether the date of search for the assessee is the date on which seized documents were handed over to the assessee's AO) - HELD THAT: - The Tribunal held that the proviso to section 153C requires that for a person other than the one searched the reference to the date of initiation of search be construed as the date on which books/documents/assets seized are received by the Assessing Officer of that other person. The seized material in the group case was handed over to the Assessing Officer of the assessee on 15.11.2016 (after the actual search on 05.10.2015) and was received after the due date for filing the return for the year relevant to AY 2016-17; consequently the provisions of section 153C operate with reference to 15.11.2016. Relying on the statutory text and on authoritative decisions (including RRJ Securities and coordinate Benches), the Tribunal concluded that AY 2016-17 fell within the ambit of section 153C and that the assessment ought to be treated as framed under section 153C r.w.s. 143(3) rather than under section 143(3) alone. [Paras 11, 12, 15, 16]Assessment for AY 2016-17 is to be treated as having been framed under section 153C r.w.s. 143(3). Ground Nos. 1 & 2 of the assessee's appeal are allowed.Requirement of incriminating material for invoking Sections 153C/153A in non abated assessments - Validity of notice under Section 153C - Whether proceedings and assessments for AYs 2013-14 to 2016-17 (non abated/ completed assessments) are maintainable where no incriminating material pertaining to the assessee was found or seized - HELD THAT: - The Tribunal examined the satisfaction notes, the seized loose papers (LPS 2 and LPS 7) and other seized material and found that those documents comprised permissions/diversion letters and items without financial impact; the document from a mobile phone related to a balance already recorded in the assessee's books. No incriminating material, document wise correlating to the relevant assessment years, was found that would justify reopening completed non abated assessments. The Tribunal relied on Supreme Court and High Court authorities (including Sinhgad Technical Education Society, Kabul Chawla, Mechmen) and coordinate Bench decisions that additions in completed assessments under search provisions can be made only on the basis of incriminating material unearthed in the search; where no such material exists the proceedings under section 153C/153A are without jurisdiction. Noting also that the Assessing Officer himself made no addition on account of the seized loose papers, the Tribunal concluded that the proceedings for AYs 2013-14 to 2016-17 were without jurisdiction and quashed the assessments for those years. [Paras 19, 20, 21]Proceedings initiated under section 153C for AYs 2013-14 to 2016-17 are quashed and the assessments for these years are set aside; Ground No. 3 of the assessee's appeal is allowed.Additions based solely on Departmental Valuation Officer report - Reference to DVO under Section 142A requires cogent material or rejection of books of account - Allowance of rebate for difference between CPWD and local PWD rates and for self supervision in valuation - Whether additions on account of alleged undisclosed investment in construction (assessed on the basis of the DVO report) are sustainable where the assessee maintained books, produced vouchers and pointed out multiple discrepancies in the DVO report - HELD THAT: - The Tribunal found that the Assessing Officer referred the valuation to the DVO without pointing to cogent material showing undisclosed investments or rejecting the assessee's books; the assessee maintained day to day books with vouchers and produced a registered valuer's report corroborating its figures. The DVO had applied CPWD/DPAR rates (yielding valuations substantially higher than local guideline values) and included manifestly excessive or inapplicable items (e.g., leveling, over estimated boundary wall, separate tile costs) which the assessee specifically challenged. The Tribunal accepted that the DVO's valuation, being an estimate and not binding, cannot alone sustain additions in completed non abated search assessments. On merits, after allowing rebates to reflect difference between CPWD and local PWD rates and a higher allowance for self supervision (25% and 10% respectively, on the Tribunal's analysis and by reference to coordinate precedents), the Tribunal held that the correct valuation equals the cost shown in the assessee's books and that no unexplained investment remained. Consequently the additions confirmed by the lower authorities were deleted in full. [Paras 31, 32, 33, 35, 36]Additions made solely on the basis of the DVO report are not sustainable; the Tribunal adopts the assessee's actual cost of construction and deletes the impugned additions for AYs 2013-14 to 2016-17. Ground Nos. 5-9 of the assessee's appeal are allowed and the revenue's corresponding appeals are dismissed on this point.Deletion of additions for unexplained cash in absence of corroboration - Whether additions on account of unexplained cash receipts from Smt. Sunita Rai are justified when the assessee explains the transaction, no independent enquiries were made and the assessee produced contemporaneous explanations/entries - HELD THAT: - The Commissioner (Appeals) found that the loose papers relied upon by the AO did not conclusively establish taxable receipts because the assessee explained that the advance did not culminate in a sale, that the amount was adjusted against material supplies and that documentary entries supported the explanation. The AO did not examine the payer nor conduct independent enquiries (e.g., verification at the registrar's office). The Tribunal found no contrary material from the Revenue and agreed that the additions were made on assumption and presumption without adequate corroboration. [Paras 42, 43]Additions of Rs. 2,53,555 (AY 2014-15) and Rs. 3,74,000 (AY 2015-16) on account of unexplained cash from Smt. Sunita Rai are deleted; the revenue's appeals on this point are dismissed.Application of Section 69B for undisclosed investments - Whether the Assessing Officer permissibly reclassified the assessee's voluntary survey disclosure of additional income (Rs. 2,95,00,000) as income under section 69B instead of treating it as income from other sources - HELD THAT: - The Tribunal agreed with the Commissioner (Appeals) that section 69B requires ownership/possession of bullion/jewellery/valuable articles or investments exceeding amounts recorded in the books and that the AO must base satisfaction on relevant material. Here the assessee had declared the additional amount during survey and it was reflected in the return; the AO did not demonstrate that the amount was omitted from books or bring independent material to show the explanation was unsatisfactory. Reclassification under section 69B without specific material or findings as to nondisclosure in books was held to be impermissible. [Paras 46, 47]The Commissioner (Appeals) order treating the disclosed amount as income from other sources is confirmed; the AO's invocation of section 69B is rejected and the revenue's challenge is dismissed.Final Conclusion: The Tribunal partly allowed the assessee's appeals and dismissed the departmental appeals. It held that AY 2016-17 must be treated as within the scope of section 153C (date of search for the assessee being the date of receipt of seized documents), but quashed the proceedings for AYs 2013-14 to 2016-17 as non abated completed assessments in which no incriminating material pertaining to the assessee was found. Additions founded solely on the DVO report were deleted after allowing appropriate rebates, unexplained cash additions were deleted for lack of corroboration, and reclassification under section 69B was rejected. Consequently the impugned additions were set aside and the revenue's appeals were dismissed. Issues Involved:1. Validity of notice under section 153C of the Income Tax Act.2. Addition on account of undisclosed investment in construction.3. Addition on account of unexplained cash received.4. Chargeability of interest under section 234A and 234B of the Income Tax Act.Detailed Analysis:1. Validity of Notice under Section 153C of the Income Tax Act:The assessee challenged the validity of the notice issued under section 153C, arguing that the documents related to the assessee were handed over to the Assessing Officer only on 15.11.2016, and not on the date of search (05.10.2015). The Tribunal noted that the proviso to section 153C states that the date of initiation of the search should be construed as the date of receiving the documents by the Assessing Officer. Thus, the assessment should have been framed under section 153C r.w.s. 143(3) for AY 2016-17. The Tribunal allowed the assessee’s appeal on this ground, concluding that the assessment order should have been framed under section 153C and not 143(3).2. Addition on Account of Undisclosed Investment in Construction:The assessee argued that the additions made by the Assessing Officer based on the Departmental Valuation Officer's (DVO) report were unjustified. The Tribunal observed that the DVO's valuation was based on CPWD rates, which were significantly higher than local PWD rates. The Tribunal found several discrepancies in the DVO's report and noted that the cost of construction should be adjusted for these discrepancies and rebates for CPWD/PWD rates and self-supervision. The Tribunal concluded that the additions made solely on the basis of the DVO's report were unsustainable, especially in the absence of any incriminating material found during the search. The Tribunal allowed the assessee's appeal, deleting the additions made on account of undisclosed investment in construction.3. Addition on Account of Unexplained Cash Received:The Tribunal upheld the CIT(A)'s decision to delete the additions made on account of unexplained cash received from Smt. Sunita Rai. The Tribunal noted that the Assessing Officer did not conduct any independent inquiry or examine Smt. Sunita Rai to substantiate the addition. The Tribunal found that the assessee had adequately explained the nature of the transactions and the adjustments made in the books of accounts. The Tribunal confirmed the CIT(A)'s decision to delete the additions.4. Chargeability of Interest under Section 234A and 234B:The assessee did not press this ground during the hearing, acknowledging that the chargeability of interest under these sections is consequential and mandatory in nature. The Tribunal dismissed this ground as not pressed.Conclusion:The Tribunal partly allowed the assessee's appeals and dismissed the revenue's appeals. The Tribunal concluded that the assessment for AY 2016-17 should have been framed under section 153C, the additions made on account of undisclosed investment in construction were unsustainable, and the additions on account of unexplained cash received were rightly deleted by the CIT(A). The chargeability of interest under sections 234A and 234B was acknowledged as consequential and mandatory.