Assessment under Section 153C invalid without incriminating material from search action, survey evidence insufficient

The ITAT Mumbai ruled in favor of the assessee in a case involving assessment under section 153C. The court held that additions made for on-money received in construction projects for AY 2013-14 to AY 2016-17 were invalid as they were based on survey material rather than search action, and no incriminating material was found during the search. The court deleted all additions made without incriminating evidence. Additionally, the court found that AY 2017-18 should have been assessed under section 153C instead of section 143(3), quashing the invalid assessment and allowing the assessee's appeal.

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Issues Involved:

1. Validity of assessment proceedings under Section 153C for AY 2013-14 to 2016-17.
2. Validity of assessment proceedings under Section 143(3) for AY 2017-18.
3. Legality of additions made based on extrapolation technique for on-money received.
4. Profit estimation on on-money received for new construction and redevelopment projects.
5. Addition under Section 43CA for AY 2017-18.
6. Initiation of penalty proceedings under Section 274 r.w.s 271AAB(1A) and 271(1)(c).
7. Levy of interest under Sections 234A, 234B, and 234C.

Detailed Analysis:

1. Validity of Assessment Proceedings under Section 153C for AY 2013-14 to 2016-17:
The assessee challenged the jurisdiction of the Assessing Officer (AO) under Section 153C, arguing that the proceedings were initiated without any incriminating material pertaining to the relevant assessment years. The Tribunal noted that the cash seized from Shri Ishwardev Shukla was not treated as unexplained by the AO, and the addition was based on materials impounded during a survey, not during the search. Citing the Supreme Court's decision in CIT v. Sinhgad Technical Education Society, the Tribunal held that the absence of incriminating material related to the assessment years in question invalidated the proceedings under Section 153C. Thus, the assessments for AY 2013-14 to 2016-17 were quashed.

2. Validity of Assessment Proceedings under Section 143(3) for AY 2017-18:
The assessee contended that the assessment for AY 2017-18 should have been conducted under Section 153C, not Section 143(3), as the satisfaction note for invoking Section 153C was recorded on 16.07.2018. The Tribunal, referencing the Supreme Court's ruling in CIT v. Jasjit Singh, agreed that the assessment year 2017-18 fell within the six years to be assessed under Section 153C. Consequently, the assessment under Section 143(3) was deemed invalid and was quashed.

3. Legality of Additions Based on Extrapolation Technique for On-Money Received:
The AO used an extrapolation technique to estimate on-money received across various years, which the assessee contested. The Tribunal found the AO's method of extrapolation without direct evidence to be inappropriate, particularly as the basis for addition was impounded material from the survey, not the search. The Tribunal's decision to quash the assessments effectively nullified these additions.

4. Profit Estimation on On-Money Received for New Construction and Redevelopment Projects:
The AO estimated profits at 36% for new projects and 16% for redevelopment projects, which the assessee argued was excessive compared to the industry standard of 8% to 10%. The Tribunal did not specifically address this issue on merits due to the quashing of the assessments but noted the lack of direct evidence for such estimations.

5. Addition under Section 43CA for AY 2017-18:
The AO made an addition under Section 43CA for differences between the sale price and stamp duty value. Although the Tribunal quashed the assessment for AY 2017-18, it did not specifically address this addition due to the broader decision on the validity of the assessment.

6. Initiation of Penalty Proceedings under Section 274 r.w.s 271AAB(1A) and 271(1)(c):
The assessee challenged the initiation of penalty proceedings. The Tribunal's decision to quash the assessments rendered the penalty proceedings moot, as there was no valid assessment to support the penalties.

7. Levy of Interest under Sections 234A, 234B, and 234C:
The Tribunal did not specifically address the issue of interest levies due to the quashing of the assessments, which eliminated the basis for such interest charges.

Conclusion:
The Tribunal allowed the appeals for AY 2017-18 and AY 2013-14 to 2016-17, quashing the assessments due to procedural and jurisdictional deficiencies, particularly the improper invocation of Section 153C and the invalidity of the assessment under Section 143(3). The decision underscores the necessity of adhering to statutory requirements for valid assessment proceedings.

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