2024 (8) TMI 106 - AT - Income Tax

Section 153A assessments require incriminating material from search; completed assessments cannot be reopened without seized evidence

ITAT Bangalore held that assessments under section 153A cannot be framed without incriminating material found during search. For assessment years 2011-12 ... Validity of assessment u/s 153A - whether assessments are not pending on the date of search? - As argued unabated assessment cannot be framed without any incriminating material found during the course of search action conducted u/s 132 - HELD THAT:- During the course of search proceedings at M/s. John Distilleries Pvt. Ltd., Bangalore, certain incriminating documents/materials pertaining to assessee were found and serzed. Statements were recorded under oath from the employees, the key persons and the CMD of the Assessee Company. HELD THAT:- In this case, the assessment was already completed u/s 143(3) for the assessment years 2011-12 and 2012-13 u/s 153A. 2 In our opinion, at this stage, we cannot quash the assessment u/s 153A of the Act is bad in law. However, the ld. AO has to examine whether the seized material referred in these two assessment years marked is having any relevance to for making addition in these two assessment years. If this seized material has no relevance in these assessment years 2011-12 & 2012-13, in such circumstances, these two assessments are being concluded assessments and these assessments cannot be reopened u/s 153A of the Act. In other words, if the assessee’s case falls under below category for these two assessment years, the assessment cannot be reopened u/s 153A of the Act without any seized material found during the course of search action. AO is directed to examine this issue in the light of above observation and decide accordingly. This ground of appea is partly allowed for statistical purposes. Assuming jurisdiction u/s 132(1) of the Act is bad in law as there was no valid satisfaction recorded for conducting search action - In our opinion, this ground cannot be entertained at this stage in view of the insertion of explanation to section 132(1) with retrospective effect from 1.4.1962 by Finance Act, 2017. The said explanation prefers the appellate authorities to go into the reasons recorded by the concerned Income Tax authority for directing the search against the assessee. This view is fortified by case of Pratibha Jewellery House [2017 (11) TMI 1744 - KARNATAKA HIGH COURT] Addition merely on statement recorded u/s 132(4) /131(1A) - whether the assessee is entitled to revise its position in departure with the original stand that is taken in the return filed u/s 139 of the Act prior to search or filed u/s 153A of the Act. In other words, whether assessee entitled to revise its claim and alter its original position in accordance with law or not? - HELD THAT:- Authorities under the Income tax are not sacrosanct obligation to act in accordance with law. Tax could be collected as provided under the Act. If an assessee on a mistake, misconception are not being properly instructed is either assessed or over assessed, the authorities under the Act are required to ensure that only legitimate tax dues are collected. This view which flows from enumerable judgements including CIT Vs. Shelly Products [2003 (5) TMI 4 - SUPREME COURT], S.R. Kosti [2004 (12) TMI 62 - GUJARAT HIGH COURT], CIT Vs. Prithvi Brokers and Shareholders [2012 (7) TMI 158 - BOMBAY HIGH COURT] and so on. Therefore, the assessee is within legitimate right to alter wrong position taken earlier in the course of proceedings. In the instant case, assessee wanted to alter its position in the return filed u/s 153A of the Act filed in pursuance to such proceedings, wherein assessee has offered certain additional income in respect of issue raised before us and assessee prayed before us that the assessment in the case of assessee to be completed on the basis of audited books of accounts and not on the basis of admission or offer made in the course of search action vide statement recorded u/s 132(4)/131 of the Act. In our opinion, these additions cannot be based alone on statement recorded u/s 132(4) of the Act, it should be corroborated by seized material/incriminating material suggesting impugned additions. AO cannot solely rely on the statement recorded u/s 132(4) of the Act without appropriate corroborative materials as recently held by Hon’ble Delhi High Court in the case of PCIT Vs. Pavitra Realcon Pvt. Ltd. [2024 (5) TMI 1408 - DELHI HIGH COURT] Statements recorded u/s 132(4) of the I.T. Act, 1961 solely cannot constitute as incriminating material so as to make these additions. Admission of additional evidences - We direct the ld. AO to determine the income of the assessee in these assessment years only on the basis of seized material/incriminating material in the assessment year 2011-12 to 2016-17 and not solely on the basis of statement recorded u/s 132(4) of the Act. More so, assessee has been continuously before the ld. AO as well as ld. CIT(A) requesting to do the assessments on the basis of books of accounts and evidence found during the course of search since the declaration made by assessee during the course of search was lumpsum basis as there was no enough time to verify the correctness of the records which were voluminous. Before us, assessee filed additional evidence, those are admitted as discussed in the earlier para of this order and it is required to be examined by the authorities as they have vital impact on the computation of income of the assessee. Hence, the issue relating to the admission of additional income by the assessee in the returns filed u/s 153A of the Act and addition made by ld. AO while framing assessment u/s 153A of the Act is required to be re-examined in the light of additional evidences filed by the assessee. Approval given u/s 153D of the Act is mechanical - For this purpose, Assessee relied on the judgement in the case of PCIT Vs. Sapna Gupta [2022 (12) TMI 887 - ALLAHABAD HIGH COURT] and in the case of CIT Vs. Anju Bansal [2023 (7) TMI 1214 - DELHI HIGH COURT]. However, the assessee was not able to demonstrate how there was no subjective satisfaction recorded for granting approval u/s 153D of the Act by competent authority. Hence, this ground of appeals is dismissed. Validity of notice u/s 153A - order was passed u/s 153C of the Act on 28.12.2018 as the time limit to issue notice for those assessment years has been already lapsed, as such no notice u/s 153C of the Act to be issued for the assessment years 2011-12 & 2012-13 - AY 2011-12 & 2012-13 - HELD THAT:- In the instant case search of '’JDPL’' was conducted on 03.11.2016, then in his case, the Assessing Officer was empowered to initiate the proceedings for assessment/reassessment for the assessment years 2016-17, 2015-16, 2014-15, 2013-14, 2012-13 & 2011-12. It was because the assessment year relevant to previous year in which search took place was the assessment year 2017-18 (previous year 2016-17), but when provisions of proviso to section 153C are applied, then date of search is substituted by date of handing over of the documents by the Assessing Officer of the person searched to the Assessing Officer of the other person (present assessee). Even if we consider the issue of notice u/s153C of the Act was on 7.9.2018, which fell in the assessment year 201920. The Assessing Officer could reopen the assessment for six assessment years preceding this assessment year. They were assessment years 2018-19, 2017-18, 2016-17, 2015-16, 2014-15 & 2013-14. Thus, the assessment for the assessment years 2011-12 & 2012-13 was barred by limitation, so far as the present assessee was concerned. In any case, the instant issue was raised for the first time before the Tribunal and, thus, it had not been examined by the lower authorities, therefore, the matter was to be restored to his file for considering the date when the relevant documents were handed over by the Assessing Officer of the person searched to the Assessing Officer of the present assessee and decide this issue accordingly, in the light of our above observations. Issues Involved:1. Admission of additional grounds and evidences.2. Validity of assessments under Section 153A/153C without incriminating material.3. Jurisdictional issues related to Section 132(1) and Section 153D.4. Allegations of bogus expenses and undisclosed income.5. Violation of principles of natural justice.6. Charging of interest under Section 234A.Detailed Analysis:1. Admission of Additional Grounds and Evidences:The assessee filed additional grounds under Rule 11 of the I.T. Act, arguing that no transactions with certain contractors occurred in the relevant assessment years, thus no additions were warranted. The Tribunal admitted these additional grounds, relying on the Supreme Court judgment in NTPC Vs. CIT, which allows for the admission of additional grounds if no fresh facts need investigation and the action is bona fide.The assessee also filed applications under Rule 29 r.w.s. Rule 18(4) of the ITAT Rules, seeking admission of additional evidences such as bills, vouchers, and revised computation of income. The Tribunal admitted these additional evidences, emphasizing the need for substantial justice and the Tribunal's discretion to admit additional evidence to ensure a fair assessment.2. Validity of Assessments under Section 153A/153C Without Incriminating Material:The assessee contended that assessments for certain years were concluded and could not be reopened without incriminating material found during the search. The Tribunal referred to the Mumbai Special Bench decision in All Cargo Global Logistics Ltd. and the Supreme Court judgment in CIT v. Abhisar Buildwell (P) Ltd., which held that concluded assessments could not be reopened without incriminating material. The Tribunal directed the AO to examine if the seized material was relevant to the assessment years in question and to frame the assessments accordingly.3. Jurisdictional Issues Related to Section 132(1) and Section 153D:The Tribunal dismissed the ground challenging the jurisdiction under Section 132(1), citing the Karnataka High Court decision in Pratibha Jewellery House Vs. CIT, which upheld the retrospective amendment prohibiting appellate authorities from examining the reasons for the search.Regarding the approval under Section 153D, the Tribunal noted that the assessee failed to demonstrate that the approval was granted mechanically. Thus, this ground was dismissed.4. Allegations of Bogus Expenses and Undisclosed Income:The AO made additions based on statements recorded under Section 132(4) and 131, alleging bogus expenses and undisclosed income. The Tribunal observed that additions could not be based solely on such statements without corroborating evidence. It referred to various judgments, including CIT Vs. Harjeev Aggarwal and CIT Vs. Sinhgad Technical Education Society, which emphasized the need for corroborative material to support statements made during the search.The Tribunal remanded the issues to the AO for fresh consideration, directing that the assessments be based on incriminating material and allowing the assessee to produce additional evidence to substantiate their claims.5. Violation of Principles of Natural Justice:The assessee argued that the lower authorities violated the principles of natural justice by not providing an opportunity to present evidence. The Tribunal found no substantial proof of such violation and dismissed this ground.6. Charging of Interest under Section 234A:The Tribunal noted that charging interest under Section 234A is consequential and mandatory, thus directing the AO to compute it accordingly.Conclusion:The Tribunal allowed the appeals partly for statistical purposes, remanding several issues to the AO for reconsideration based on incriminating material and additional evidence, while dismissing grounds related to jurisdiction and natural justice violations.