2023 (10) TMI 1195 - AT - Income Tax

Assessment quashed under section 153A as loose sheet about bottle pricing cannot establish unaccounted assets without corroborating evidence

The ITAT Chennai quashed an assessment under section 153A where the AO alleged unaccounted cash payments for asset acquisition based on a loose sheet ... Assessment u/s 153A - income which had escaped assessment represented in the form of unaccounted cash paid for the acquisition of various assets by the assessee company - assessment based on loose sheet found during the search at the premise of assessee’s major supplier of bottles and cartons HELD THAT:- As proviso to sub-section (1) of section 153A we are of the opinion that the loose sheet containing information regarding over-pricing or over-invoicing of purchase cost of bottles cannot be considered as an asset for the reason that the word “asset” is explained in Explanation 2 to fourth proviso to Sec. 153A which means any investment of the assessee towards land or building or both, share and securities, loan and advances, deposits in bank account. Moreover, in the assessment order, AO did not mention any evidence to corroborate his claim that the unaccounted cash was paid by the assessee for purchase of its assets or there were any unexplained asset/investment which had been purchased from the alleged unaccounted cash. As relying on Viraj Profiles Limited case [2023 (5) TMI 358 - ITAT MUMBAI] we are of the considered opinion that the ld. CIT(A) has rightly held that the notice issued u/s 153A is without jurisdiction and quashed the assessment so framed under section 143(3) r.w.s. 153A - Decided in favour of assessee. Issues:The judgment involves the following Issues:1. Validity of notice under section 153A of the Income Tax Act.2. Interpretation of the definition of 'asset' as per Explanation 2 to the fourth proviso of section 153A(1) of the Act.3. Assessment proceedings based on unaccounted cash generated in the form of assets.Issue 1: Validity of Notice under Section 153A:The Revenue filed appeals against the order of the Commissioner of Income Tax (Appeals) challenging the validity of the notice issued under section 153A for the assessment years 2008-09, 2010-11, and 2011-12. The Revenue contended that the notice was valid as unaccounted income generated in the form of cash is considered an asset. However, the CIT(A) held that the notice under section 153A was without jurisdiction and consequently, the assessment framed under section 143(3) r.w.s. 153A was void ab initio.Issue 2: Interpretation of 'Asset' under Explanation 2 to Fourth Proviso of Section 153A(1):The Assessing Officer based the assessment on loose sheets found during a search at the premises of the assessee's supplier. The Revenue argued that the loose sheets containing information on over-pricing of purchases should be considered as assets. However, the Tribunal referred to Explanation 2 to the fourth proviso of section 153A(1) which defines 'asset' to include specific categories like immovable property, shares, loans, and deposits. The Tribunal held that the loose sheets did not fall under this definition, and there was a lack of evidence to support the claim that unaccounted cash was used to purchase assets.Issue 3: Assessment Proceedings Based on Unaccounted Cash:The assessment was initiated based on unaccounted cash generated for the acquisition of assets by the assessee company. The CIT(A) observed that there was no tangible evidence to support the claim that unaccounted cash was used to purchase assets. The Tribunal, citing a similar case, emphasized that for the fourth proviso to section 153A to apply, it must be shown that the escaped income is represented in the form of an asset. As the Assessing Officer failed to demonstrate this, the Tribunal upheld the CIT(A)'s decision that the notice under section 153A was without jurisdiction, leading to the dismissal of the Revenue's appeals for all the assessment years.This judgment highlights the importance of evidence and proper interpretation of legal provisions in assessing unaccounted income and assets under the Income Tax Act.