2024 (11) TMI 1189 - AT - Income Tax

Revenue's appeal dismissed on unexplained hotel construction investments under section 153A due to lack of jurisdiction

The DCIT Central Circle-1 Jaipur Versus Shri Mahaveer Kumar Jain And (Vice-Versa)

ITAT Jaipur dismissed revenue's appeal regarding unexplained investments in hotel construction under section 153A. The tribunal held that AO lacked ... Assessment u/s 153A - Unexplained investment in construction of Hotel building - during the course of search proceedings, incriminating documents regarding investment in the construction of Hotel building were found and seized from the premises of the assessee and the valuation of building was done by DVO - CIT(A) deleted addition - HELD THAT:- Action of revenue challenging the addition has no merits and lacks the jurisdiction of the AO u/s. 153A of the Act because the material found in the search of any other person than the assessee in appeal cannot be considered in the assessment under 153A of the assessee. Even that finding of the ld. CIT(A) in the case of the assessee has been decided in detailed in the appeal of the assessee for A. Y. 2010- 11 wherein the ld. CIT(A) categorically held that “if any income on this count, is liable to be assessed in the hands of the partnership firm and accordingly, the appellant succeeds on this issue in these terms.” Bench further noted that CIT(A) considered the submission and allowed the ground of the assessee. Further, it is noticed that ld. CIT(A) after considering the assessment order, documents and judgments placed on record, remand report and submissions of the assessee passed a detailed and reasoned order. Moreover, the department has merely challenged the quantum addition and not decision of the ld. CIT(A) with respect to allowance of legal ground no. 1 of the assessee in Form No. 35 wherein the legal ground as to challenging the assessment order as time barred and without jurisdiction was decided by the learned CIT(A) in favour of the assessee - Ground No. 1 raised by the revenue is dismissed. Undisclosed income from Garden Mahaveer Paradise - CIT(A) after considering the assessment order, documents and judgments on record, remand report and submissions of the assessee passed a detailed and reasoned order wherein we find no reason to interfere in his order. In this view of the matter, the Ground No. 2 of the Department is dismissed. Unexplained investment u/s 69 in respect of construction of residential house property - Assessee is engaged in the business of sale of construction material viz. Timer, Plywood, Sunmica etc, hence, the assessee is well conversant with various construction persons/business viz. Architects, Builders, Contractors, Carpenters, Other Construction material suppliers etc. As a result, the assessee has taken good advantage of his contacts in construction line, material goods as well as construction services, resulting in further reduction in construction costs to a significant extent. Hence the assessee is further able to save around 10% of the construction costs in this regard. No discrepancy was pointed out by the AO in the registered valuer report, meaning thereby, it was duly accepted otherwise discrepancies have been pointed therein. Moreover, no further opportunity of being heard was provided in respect of variations pointed out in the case of registered valuer report and DVO report. Instead, AO made the addition without considering the objections raised by stating that the objections should have been raised before the DVO. A.O. generally mentioned in the remand report that there are various discrepancies in the valuer report but no specific discrepancy is mentioned in the remand report except PWD rate. CIT(A) considered this and allowed the ground of the assessee considering the assessment order, documents and judgments on record, remand report and submissions of the assessee passed a detailed and reasoned order and we do not find any infirmity in his order. Thus Ground No. 1 read with ground no. 4 of the Department is dismissed. Scope of incriminating documents/ material - After hearing both the parties and perusing the materials available on record, it is noted that incriminating material and not merely material should be found during the course of search for making addition in respect of unabated assessments. The term “incriminating” is a negative term which means “to provide evidence that somebody is guilty of a crime”. There is no whisper about any incriminating material found during search in the assessment order or in the remand report. As noted from the query raised by the A.O. as to whether any incriminating material was found and seized during search. Hence, it is evident that no incriminating material was found during search otherwise the AO would have directly asked queries by confronting the incriminating material. As far as construction bills are concerned, these are duly recorded and declared by the assessee as construction investment. These are in the nature of material and not incriminating material. Each and every material found during search cannot be treated as incriminating. The assessing authorities nowhere pointed out any specific bill / document which was not declared by the assessee. CIT(A) duly considered all submissions, judgments, material on record, AO’s remand report and allowed the appeal of the assessee by passing a detailed and reasoned order. Issues Involved:1. Legitimacy of additions made on account of unexplained investments in hotel and residential property construction.2. Legitimacy of additions made on account of undisclosed income from Garden Mahaveer Paradise.3. Application of Supreme Court judgments in cases involving incriminating documents.4. Validity of assessment orders issued without a Document Identification Number (DIN).5. Condonation of delay in filing appeals by the Department.Detailed Analysis:1. Unexplained Investments in Hotel and Residential Property Construction:The primary issue was whether the Commissioner of Income Tax (Appeals) [CIT(A)] was justified in deleting additions made by the Assessing Officer (AO) concerning unexplained investments in the construction of a hotel and residential property. The AO had relied on the District Valuation Officer's (DVO) report, which estimated a higher construction cost than declared by the assessee. The Tribunal upheld the CIT(A)'s decision to delete these additions, emphasizing that no incriminating material was found during the search to justify these additions. The Tribunal reiterated that additions based solely on a DVO's report are not sustainable, as such reports are considered mere opinions and not concrete evidence of undisclosed income.2. Undisclosed Income from Garden Mahaveer Paradise:The Revenue challenged the deletion of additions related to alleged undisclosed income from Garden Mahaveer Paradise. The AO had made these additions based on assumptions and extrapolations without any incriminating evidence found during the search. The Tribunal agreed with the CIT(A)'s decision to delete these additions, highlighting that the garden was used by the assessee's family and friends on a complimentary basis, and there was no evidence of rental income. The Tribunal emphasized that additions in search assessments must be based on tangible incriminating material, not on conjectures or extrapolations.3. Application of Supreme Court Judgments:The Revenue argued that the CIT(A) wrongly applied Supreme Court judgments in the cases of Abhisar Buildwell and UK Paints, which pertain to situations where no incriminating documents are found during a search. The Tribunal supported the CIT(A)'s application of these judgments, stating that no incriminating material was found during the search in the present case, and therefore, the AO could not make additions for completed/unabated assessments. The Tribunal underscored that the absence of incriminating material limits the scope of additions under section 153A of the Income Tax Act.4. Validity of Assessment Orders Without DIN:The assessee raised cross-objections regarding the validity of assessment orders issued without a mandatory Document Identification Number (DIN). The Tribunal noted that the assessment order was communicated with a DIN, thus rendering this objection moot. The Tribunal dismissed the cross-objections, as the main appeals by the Department were dismissed, making the cross-objections irrelevant.5. Condonation of Delay in Filing Appeals:The Department filed appeals with a delay of 13 days, citing voluminous time-barring matters as the reason for the delay. The Tribunal condoned the delay in the interest of equity and justice, noting that the assessee did not object to the delay. The Tribunal, however, advised the Department to be vigilant in timely filing appeals in the future.Conclusion:The Tribunal dismissed the appeals filed by the Revenue and the cross-objections filed by the assessee, upholding the CIT(A)'s orders. The Tribunal emphasized the necessity of incriminating material for making additions in search assessments and reiterated that mere valuation reports or assumptions cannot form the basis for such additions. The Tribunal's decision aligns with the principles laid down by the Supreme Court regarding the scope of assessments under section 153A in the absence of incriminating material.