2025 (5) TMI 211 - AT - Income Tax

Assessment under Section 153C invalid when documents seized from assessee's own premises makes him searched person under Section 153A

ITAT Chennai held that assessment proceedings under Section 153C were invalid as incriminating documents were seized from the assessee's own premises ... Assessment u/s 153C OR 153A - statement made by the assessee u/s 132(4) - HELD THAT:- As per fact of seizure of impugned documents from the assessee and statement recorded on oath u/s 132(4) from the assessee, the conclusion ofCIT(A) that there was a clerical error in the Panchnama could not be accepted. The provisions of Sec.153C would apply only if the documents are found during search on another assessee. The same is not the case here. In the present case, the incriminating document has been found from assessee’s possession during search at his premises and the same form the very basis of impugned additions in the hands of the assessee himself. On these facts, the assessee was to be considered as searched person within the meaning of Sec.153A and therefore, the proceedings should not have been initiated u/s 153C in the case of the assessee. Therefore, the assessment so framed u/s 153C was to be considered as bad-in-law. The assessee succeeds on this foremost legal grounds, in both the years. Only basis to make the impugned additions is the statement made by the assessee u/s 132(4) -There is no corroboration of the admission as made by the assessee. Pertinently, in the same statement, the assessee has stated that the impugned investments were sourced out of funds provided by Shri Aswin Thakker which has been rejected by AO. Part of the statement has been accepted and part of the statement has been rejected which is impermissible. The same is also evident by the fact that the properties in which the investments were made by the assessee were under dispute before various courts. The same would show that the ownership of the properties was in dispute despite the fact that the same was registered in the name of the assessee and his wife. Therefore, we concur with the aforesaid submissions of Ld. AR that the impugned additions could not have been made on given facts. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Tribunal are:(a) Whether the assessment framed under section 153C of the Income Tax Act was valid, given that the assessee was a searched person and his statement was recorded under section 132(4), thereby attracting the provisions of section 153A instead of section 153C;(b) Whether the warrant of authorization and Panchnama correctly identified the searched person, and if a clerical error in the Panchnama affects the jurisdiction to frame assessment under section 153C;(c) Whether the addition of Rs. 1,30,50,000 as unexplained investment under section 69 of the Act, based on loose sheets and seized documents, was justified;(d) Whether the evidentiary value of the statement recorded under section 132(4), particularly the part admitting investments sourced from a third party (Mr. Aswin Thakker), can be selectively accepted or rejected;(e) Whether the properties in question, registered in the name of the assessee and his wife but under dispute in courts, can be considered as undisclosed investments liable to tax.2. ISSUE-WISE DETAILED ANALYSISIssue (a) & (b): Jurisdiction to frame assessment under section 153C vs. section 153ARelevant legal framework and precedents: Section 153A applies to searched persons, allowing assessment or reassessment of their income for relevant years. Section 153C applies to persons other than the searched person, when incriminating documents relating to them are found during a search conducted on another person. The warrant of authorization and Panchnama are critical to determining the searched person(s).Court's interpretation and reasoning: The Tribunal examined the warrant of authorization dated 27-11-2013, which was issued in the name of Shri D. Ramgopal to search the premises of the assessee. However, the Panchnama recorded on the same date bore the name of the assessee instead of Shri D. Ramgopal. The first appellate authority (CIT(A)) held this to be a clerical error and accepted the validity of the assessment under section 153C. The Tribunal disagreed with this conclusion.Key evidence and findings: The incriminating documents were seized from the assessee's premises, and the statement of the assessee was recorded under oath pursuant to the search. The warrant of authorization was not issued in the name of the assessee, but the seized documents and statement clearly pertained to the assessee, indicating he was the person searched.Application of law to facts: Since the incriminating material was found in the possession of the assessee during a search at his premises, and his statement was recorded under section 132(4), the Tribunal held that the assessee must be considered a searched person within the meaning of section 153A. Consequently, the assessment should have been framed under section 153A and not under section 153C.Treatment of competing arguments: The Department argued that the warrant was issued only in the name of Shri D. Ramgopal and hence section 153C was applicable. The Tribunal rejected this on the ground that the Panchnama naming the assessee was not a mere clerical error but indicative of the actual searched person, supported by the seizure and recording of statement. The Tribunal emphasized that section 153C applies only when documents are found during search on another assessee, which was not the case here.Conclusions: The Tribunal concluded that the assessment framed under section 153C was invalid and bad in law, and the proceedings should have been initiated under section 153A. This conclusion was upheld for both assessment years.Issue (c): Validity of addition of Rs. 1,30,50,000 as unexplained investment under section 69Relevant legal framework and precedents: Section 69 deals with unexplained investments, allowing the Assessing Officer to add unexplained investments to income if the assessee fails to satisfactorily explain the sources. The evidentiary value of seized documents and statements recorded under section 132(4) are crucial in such cases.Court's interpretation and reasoning: The addition was primarily based on loose sheets seized from the assessee's premises, which contained entries of investments but lacked dates and direct attribution to the assessee. The assessee claimed that these entries related to amounts provided by Mr. Aswin Thakker and that he was merely maintaining accounts for these amounts.Key evidence and findings: The statement of the assessee under section 132(4) admitted investments sourced from Mr. Aswin Thakker, but this was denied by Mr. Thakker himself. The properties were registered in the names of the assessee and his wife; however, ownership was disputed in courts. No corroborative evidence was found to link the loose sheets conclusively to the assessee's unexplained investments.Application of law to facts: The Tribunal noted that the Assessing Officer partially accepted and partially rejected the statement of the assessee, which is impermissible. Since the assessee's claim of external funding was not disproved conclusively, and given the ongoing disputes over property ownership, the addition lacked a solid foundation.Treatment of competing arguments: The Department relied on the presumption under sections 132(4A) and 292C and the seized documents to justify additions. The assessee challenged the evidentiary value of the loose sheets and the lack of direct connection to him. The Tribunal sided with the assessee on the insufficiency of evidence.Conclusions: The addition of Rs. 1,30,50,000 as unexplained investment was deleted for both assessment years.Issue (d): Treatment of statement recorded under section 132(4)Relevant legal framework and precedents: Statements recorded under section 132(4) during search and seizure proceedings can be used as evidence but must be considered in entirety and corroborated by other material.Court's interpretation and reasoning: The Tribunal observed that the Assessing Officer accepted part of the statement (investments made by the assessee) and rejected another part (source of funds from Mr. Aswin Thakker) without adequate basis. This selective acceptance and rejection of the statement was found to be impermissible.Key evidence and findings: The statement was recorded on oath and admitted the source of funds from a third party. The denial of this by the third party without further corroboration was insufficient to reject the entire statement.Application of law to facts: The Tribunal emphasized that the statement should be read as a whole and not piecemeal. The absence of corroborative evidence to disprove the source of funds claim weakened the basis for additions.Treatment of competing arguments: The Department argued that the denial by the third party negated the claim of external funding. The Tribunal found this argument inadequate without supporting evidence.Conclusions: The Tribunal held that the statement could not be partially accepted and partially rejected, thereby undermining the additions based solely on it.Issue (e): Treatment of disputed properties as undisclosed investmentsRelevant legal framework and precedents: Ownership and possession of properties, along with clear evidence of investment, are necessary to treat properties as undisclosed investments liable to tax.Court's interpretation and reasoning: The properties in question were registered in the name of the assessee and his wife but were subject to ongoing litigation and ownership disputes. The assessee denied possession and claimed lack of source for purchase, further stating that he had requested authorities to sell the properties to adjust tax demands.Key evidence and findings: The properties' disputed status before courts indicated uncertainty regarding ownership and possession. The assessee's inability to demonstrate clear ownership and source of funds was noted, but the ongoing litigation and lack of possession weighed against treating the properties as undisclosed investments conclusively.Application of law to facts: Given the disputed ownership and lack of possession, the Tribunal found it inappropriate to treat the properties as unexplained investments for tax additions.Treatment of competing arguments: The Department relied on registration documents to assert ownership and justify additions. The assessee's contention of dispute and lack of possession was accepted by the Tribunal.Conclusions: The Tribunal declined to uphold additions on account of disputed properties for both assessment years.3. SIGNIFICANT HOLDINGS'Upon commutative consideration of above stated facts including that fact of seizure of impugned documents from the assessee and statement recorded on oath u/s 132(4) from the assessee, the conclusion of Ld. CIT(A) that there was a clerical error in the Panchnama could not be accepted.''The provisions of Sec.153C would apply only if the documents are found during search on another assessee. The same is not the case here. In the present case, the incriminating document has been found from assessee's possession during search at his premises and the same form the very basis of impugned additions in the hands of the assessee himself.''On these facts, the assessee was to be considered as searched person within the meaning of Sec.153A and therefore, the proceedings should not have been initiated u/s 153C in the case of the assessee. Therefore, the assessment so framed u/s 153C was to be considered as bad-in-law.''The statement recorded under section 132(4) cannot be selectively accepted and rejected. Part of the statement admitted investments, and part claimed external source of funds, which was denied without corroboration. Such selective acceptance is impermissible.''Considering totality of facts and circumstances of the case, the impugned additions are deleted for both the years.'Core principles established include the correct application of sections 153A and 153C based on the identity of the searched person, the inadmissibility of assessments framed under section 153C when the assessee is the searched person, and the necessity of corroborative evidence to sustain additions based on statements recorded under section 132(4). The Tribunal also emphasized the importance of considering ownership disputes in assessing unexplained investments in properties.Final determinations were that the assessments framed under section 153C were invalid and the additions of Rs. 1,30,50,000 under section 69 were deleted for both assessment years, allowing the appeals of the assessee.