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 ... Assessment u/s 153C r.w.s. 143(3) of the Act OR u/s 143(3) - HELD THAT:- As AY 2016-17 fell within the purview of provisions of section 153C of the Act in light of first proviso read with sub-section (2) of section 153C of the Act and accordingly, assessment order for AY 2016-17 ought to be treated as framed u/s 153C r.w.s. 143(3) of the Act and not u/s 143(3) of the Act AY 2016-17. Accordingly, Ground Nos. 1 & 2 of the assessee’s appeal are allowed. Validity of assessment even when no incriminating documents related to the assessee were found and seized from the possession of the person in whose case search was executed and more so when no addition was made in respect of the so-called incriminating documents referred to by the Ld. Assessing Office - HELD THAT:- As relying on KABUL CHAWLA [2015 (9) TMI 80 - DELHI HIGH COURT] and MEETA GUTGUTIA PROP. M/S. FERNS ‘N’ PETALS [2017 (5) TMI 1224 - DELHI HIGH COURT] proceedings initiated u/s 153C of the Act for the AY 2013-14 to 2015-16 being non-abated and completed assessments (considering the date of search for proceedings u/s 153C of the Act as 15.11.2016) deserves to be quashed, since no incriminating material was found during the course of search thereby warranting initiation of proceedings u/s 153C of the Act for these years. Moreover, no addition was made by the Ld. Assessing Officer himself while passing the assessment order on the basis of the so-called incriminating material which formed the very basis for initiation of proceedings u/s 153C of the Act. We, therefore, set aside the findings of Ld. CIT(A) on this ground and conclude that proceedings initiated in the case of the assessee for AY 2013-14 to 2016-17 are without jurisdiction and consequently, assessments framed for these years are quashed and set aside. Accordingly, Ground No. 3 of the assessee’s appeal is allowed. Undisclosed investment in construction of project - addition to the total income of the assessee on account of undisclosed investment in construction of project solely on the basis of valuation report of the DVO - HELD THAT:- We find that there were various discrepancies in the valuation report submitted by the DVO which have also been discussed supra. Further, the adoption of CPWD rates by DVO for valuing the cost of construction of project of the assessee at Village Pipariya of Madhya Pradesh also seems to be very unreasonable and far from realities. We find strong force in the arguments of the Ld. Counsel that valuation adopted by the DVO was way too exorbitant and could not have been considered as the basis for making addition to the total income of the assessee since the cost of construction estimated by the DVO was even higher than the sale price as per guideline issued by the sub-registrar. It is also evident that the DVO undertook the valuation exercise considering the CPWD rates for residential bungalows completely ignoring the fact that the assessee was engaged in construction of duplex row houses for sale and not in construction of residential bungalows. AO made addition to the total income of the assessee on account of undisclosed investment in construction of project solely on the basis of valuation report of the DVO which in itself is unsustainable in light of the fact that no incriminating material was found during the course of search thereby warranting such addition to the total income of the assessee. Addition made to the total income of the assessee during the course of proceedings u/s 153C of the Act solely on the basis of valuation report of the DVO and that too in absence of any incriminating material found during the course of search was not justifiable and deserves to be deleted. Even on merits of the case, our attention was drawn to the deduction given by the Ld. CIT(A) towards CPWD/PWD rates adopted for valuation - assessee referring to various judgments of the Tribunal submitted that deduction up to 30% had been provided in similar type of cases whereas the Ld. CIT(A) had given only 25% deduction. Similarly, as regards self- supervision charges, it was contended that deduction upto 10- 12.5% had been provided in similar type of cases whereas the Ld. CIT(A) had given only 5% deduction. Valuation report prepared by the Government approved registered Valuer as well as by the DVO clearly depict that the valuation of investment in construction of the project has been overstated and looking to the fact that the impugned row houses are situated in Village Pipariya, rates taken for the purpose of valuation are quite excessive. No addition was justified to the total income of the assessee on account of undisclosed investment in construction of project. We, thus, value the cost of construction at the actual cost of ₹ 23,69,68,970/- shown by the assessee. Accordingly, we set aside the findings of Ld. CIT(A) to the extent the Ld. CIT(A) confirmed the addition on account of undisclosed investment in construction of project. Hence, the assessee gets further relief in AYs 2013-14 to 2016-17 which is over and above the relief already allowed by the Ld. CIT(A) - Decided in favour of assessee. Unexplained cash received from Smt. Sunita Rai - CIT(A) in treating the additional income admitted by the assessee during the course of survey under the head “income from other sources” as against taxability of such income by invoking of the provisions of section 69B - HELD THAT: Assessing Officer also did not specifically comment whether the additional income declared was a part of regular books of accounts or not more so when section 69B of the Act can be invoked only for income which is not fully disclosed in books of accounts and not in respect of income which is already incorporated in the books of accounts. In view of the detailed findings of the Ld. CIT(A) and reliance placed on the decision of the Hon’ble Jurisdictional Bench in the case of Mukesh Sangla HUF [2016 (2) TMI 1320 - ITAT INDORE] we do not find any infirmity in the finding of Ld. CIT(A) and the same needs to be confirmed. - Decided against revenue. 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.