TaxTMI 
TaxTMI 
2024 (8) TMI 1687
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....er section 41 (1) unless it is established that liability has been ceased. 3. The learned CIT(A) ought to have appreciated that the assessing officer has made an addition under section 153C without having found any incriminating material, hence assessment is bad in law. 4. The learned CIT(A) has grossly ignored that the voluntarily declared income of Rs. 7.50 crores has additional income which subsumed the said alleged additions made under section 41(1) amounting to Rs. 1,94,18,130/-. 5. For these and other grounds that may be urged at the time of hearing of the appeal, the appellant prays that the appeal may be allowed. 2. Facts of the issue are that the assessee is a partnership firm engaged in wholesale trading of raw fishes. During the year under question, assessee filed his return of income on 12.10.2017 declaring a total income of Rs. 67,06,650/-. Consequent to the search and seizure operation conducted under section 132 of the Act, at the residential premises of Mr. Bava U.K., partner of the assessee on 8.2.2018, there was survey u/s 133A of the Act was conducted on 8.2.2018 at the business premises of the assessee and certain documents were imp....
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....94,18,130/- was seized to exist and it is a cessation of liability made an addition on this count, which was to be deleted. Even on merits, she submitted that provisions of section 141(1) of the Act cannot be applied as there was cessation of liability and this liability was shown in the assessee's balance sheet as on 31.3.2017, which was duly audited by the CA. Further, she submitted that ld. AO not doubted the purchases in respect of these creditors and he has doubted only the one side of the entry made in the books of accounts of the assessee without rejecting the same. Further, ld. A.R. submitted that there was no write off of these debts in the books of accounts of the assessee and further she submitted that the ld. AO collected the evidence beyond the back of the assessee and the same has been relied to make an addition by invoking the provisions of section 141(1) of the Act without giving opportunity examination of those parties. She relied on the judgement of Hon'ble Supreme Court in the case of CIT Vs. Sinhgad Education Society (397 ITR 344) 3.1 Further, the ld. A.R. submitted that during the course of search in the case of U.K Bava statement recorded u/s 132(4) of the ....
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....t on 8.2.2018. The present assessee has offered Rs. 7.5 crores as additional income in the assessment year under consideration. Further, while framing the assessment on examination of the books of accounts, the ld. AO observed that there are 21 creditors in whose name balance shown as outstanding at Rs. 1,94,18,130/-. The ld. AO issued a show cause notice to the assessee on 27.11.2019 asking the assessee as to why the said amount shown as payable in respect of 21 persons who claimed to have not done any business with the assessee firm should not be added to his income u/s 41(1) of the Act. The assessee replied vide letter dated 6.12.2019 as follows: "With reference to the above, we would like to bring to your kind notice that we have been dealing raw fish trading business in wholesale in Bunder from past many years. We, proud to inform you that we are one among the big, reputed and trusted raw fish dealers in Mangaluru. We used to buy raw fishes (various varieties) from various boat owners on daily basis and same will be supplied to different Fish meal factories and other fish processing centers located in various states like Karnataka, Kerala, Gujarath etc. ....
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....ing to indicate as to in which educational courses, the education was imparted and institution-wise, whether the admissions were granted to the technical courses merit-wise or on the basis of marks obtained in XII standard HSC exam. Whether any fee structure was approved and cash component was, therefore, collected over and above the sanctioned fees were matters which ought to have been gone into and there could not be a general or vague satisfaction. The Tribunal was justified in setting aside the assessments." 5.3 As per provision u/s 153C of the Act, incriminating material which was seized had to define to the assessment years in question and it is the undisputed fact that the documents, which are seized did not establish any co-relation, document-wise with these assessment years. Since this requirement u/s 153C of the Act is essential for assessment under the provisions of section 153C of the Act, it becomes the jurisdictional fact. We find this reasoning to be logical and valid, having regard to provisions of section 153C of the Act. The crux of the above finding of the Hon'ble Supreme Court that assessment framed u/s 153C of the Act shall be based on the incriminating mate....
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....true profit and loss of the assessee. Considering the totality of the facts and circumstances of the case, we delete the addition made by ld. AO by invoking the provisions of section 41(1) of the Act in respect of impunged amount of Rs. 1,94,18,130/-. Accordingly, all the grounds of appeal of assessee are allowed. 5.5 In the result, appeal in ITA No.1018/Bang/2024 is allowed. ITA No.1019/Bang/2024 (AY 2018-19): 6. In this appeal, the assessee raised following grounds: 1. The learned CIT(A) on the facts and in the circumstances of the case is not justified in law in making additions amounting to Rs. 36,58,288/- as unaccounted purchases by overlooking the explanation and submission made by the appellant during the course of assessment. 2. The learned CIT(A) has grossly ignored that the voluntarily declared income of Ü.50 crores has additional income which subsumed the said alleged additions amounting Rs. 33,84,300/- 3. Without prejudice to the above, CIT(A) ought to have been taxed, only the profit element of Rs. 33,84,300/- at gross profit ratio of Rs. 2-3 percent as prevailing in the fishing business. 4. For these and other grounds ....
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....he basis of loose slips bearing No.12/A/NSF/2017-18 which reads as follows: SL.NO. DATE AMOUNT SL.NO. DATE AMOUNT SL.NO. DATE AMOUNT 1 13/09/2017 10,000 23 31/10/2017 10,000 45 30/12/2017 1,000 2 20/09/2017 1,000 24 11-01-2017 10,000 46 31/12/2017 10,000 3 20/09/2017 10,000 25 11-03-2017 5,000 47 01-02-2018 1,50,000 4 23/09/2017 6,000 26 11-07-2017 1,000 48 01-05-2018 1,00,000 5 25/09/2017 50.000 27 11-07-2017 25,000 49 01-05-2018 30,000 6 25/09/2017 5,00.000 28 11-09-2017 1.000 50 01-09-2018 2,00,000 7 27/09/2017 100 29 11-12-2017 10,000 51 01-10-2018 3,000 8 10-03-2017 10,000 30 14/11/2017 1,000 52 01-10-2018 1,450 9 10-04-2017 10,000 31 15/11/2017 50,000 53 01-12-2018 10,000 10 10-05-2017 10,000 32 17/11/2017 25,000 54 13/01/2018 3,00,000 11 10-07-2017 10,000 33 22/11/2017 10,000 55 13/01/2018 1,000 12 10-07-2017 1,000 34 24/11/2017 2,000 5....
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....t "No addition can be made on the basis of a loose paper which does not contain the name and the date of payment. The department is precluded in drawing inferences on the basis of suspicion, conjecture and surmises and no addition can be made on the basis of such dump document or loose sheets. 10.4 On further appeal before the Hon'ble AP High Court, the court vide its order in ITTA No.563 of 2011 upheld the decision of the Tribunal. While upholding the decision of the Hon'ble ITAT, the court held as following: " We are of the view that the Tribunal has rightly held that the registered document dt.21-08-2006 under which the respondent purchased the above property showed that only Rs. 65.00 lakhs was paid to the vendor by the respondent; that there was no evidence to how that the respondent had paid Rs. 1.00 crore in cash also to the vendor; that no presumption of such payment of Rs. 1.00 crore in cash can be drawn on the basis of an entry found in a diary/loose sheet in the premises of C.Radha Krishna Kumar which is not in the respondent's handwriting and which did not contain the name of the respondent or any date of payment or the name of the person who mad....
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....e CIT (A) and ITAT, it is evident that the Revenue has not been able to produce any cogent material which could fasten the liability on the respondent. The CIT(A) has also examined the assessment record and has observed that the AO did not make any further inquiry/investigation on the information passed on by the DCIT, Central Circle-19, New Delhi. No attempt or effort was made to gather or corroborate evidence in this relation. 14. In these facts and circumstances, we are not inclined to entertain the present appeal as no substantial question of law arises for our consideration. Accordingly, the present appeal is dismissed". 10.9 The word "such person" used in section 292C of the Act is only referrable to the person in whose premises the things or materials were found in possession or control at the time of search. Admittedly, the assessee before us was not person in whose premises, the things were found in possession or control at the time of search action. Therefore, provisions of section 292C of the Act cannot be invoked to assist the department, which is without any basis and contrary to law. In our opinion, if any document is found in the premises/possession/contr....
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....ess his income in accordance with the provisions of Section 153A. Therefore, before a notice under Section 153C can be issued two steps have to be taken. The first step is that the Assessing Officer of the person who is searched must arrive at a clear satisfaction that a document seized from him does not belong to him but to some other person. The second step is -after such satisfaction is arrived at- that the document is handed over to the Assessing Officer of the person to whom the said document "belongs". In the present cases it has been urged on behalf of the petitioner that the first step itself has not been fulfilled. For this purpose it would be necessary to examine the provisions of presumptions as indicated above. Section 132(4A)(i) clearly stipulates that when inter alia any document is found in the possession or control of any person in the course of a search it may be presumed that such document belongs to such person. It is similarly provided in Section 292C(1)(i). In other words, whenever a document is found from a person who is being searched the normal presumption is that the said document belongs to that person. It is for the Assessing Officer to rebut that presump....
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....mentioned reasons, this Court concludes that the ITAT committed no legal error in holding that the AO had wrongly assumed jurisdiction under Section 153C qua the Assessee. The ITAT, rightly, therefore, set aside the order of the CIT (A), which had held the contrary." 10.11 Moreover, in the decision of the Hon'ble Supreme Court in the case of CIT Vs. Singhad Technical Education Society reported in [2017] (378 ITR 84) (SC) it was categorically held that the incriminating material should belong to the assessee and for the assessment year under consideration in the following manner: "15. At the outset, it needs to be highlighted that the assessment order passed by the AO on August 7, 2008 covered eight Assessment Years i.e. Assessment Year 1999-2000 to Assessment Year 2006-07. As noted above, insofar as Assessment Year 1999-2000 is concerned, same was covered under Section 147 of the Act which means in respect of that year, there were re-assessment proceedings. Insofar as Assessment Year 2006-07 is concerned, it was fresh assessment under Section 143(3) of the Act. Thus, insofar as assessment under Section 153C read with Section 143(3) of the Act is concerned, it was in....
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.... that emerges therefrom is discussed in para 10. It was specifically recorded that the counsel for the Department could not point out to the contrary. It is for this reason the High Court has also given its imprimatur to the aforesaid approach of the Tribunal. That apart, learned senior counsel appearing for the respondent, argued that notice in respect of Assessment Years 2000-01 and 2001-02 was even time barred. * We, thus, find that the ITAT rightly permitted this additional ground to be raised and correctly dealt with the same ground on merits as well. Order of the High Court affirming this view of the Tribunal is, therefore, without any blemish. Before us, it was argued by the respondent that notice in respect of the Assessment Years 2000-01 and 2001-02 was time barred. However, in view of our aforementioned findings, it is not necessary to enter into this controversy." 10.12 At this point, we rely on the order of the Tribunal in the case of ACIT Vs. Manchukonda Shyam in ITA 87/Viz/2020 dt.23.09.2020 wherein the Tribunal at paras 6 and 6.1 has held as under : "6. We have heard both the parties, gone through the orders of the authorities below. Shri Lanka A....
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....cisions of Hon'ble Jurisdictional High Court as well as this Tribunal held that on the basis of notings and loose sheets found from third parties and the statement of third parties, the additions cannot be made without having corroborative / independent evidences. For the sake of clarity and convenience, we extract relevant part of the order of Ld.CIT(A) in para No.6.2 of page No.13 which reads as under : "6.2. I have considered the assessment order and submissions of the appellant. It is seen that the addition made by the AO is solely based on the social media (whatsapp) messages exchanged between the appellant and Mr. Anil Kumar, an employee of M/s Navaratna Estates. A statement u/s.132 recorded from Mr. L, Anil Kumar during the course of Search during which Mr. L. Anil Kumar was questioned and he explained the nature and 'details of messages exchanged by him with the appellant. The messages contain details of transactions in digits. Those were explained to be in lakhs of rupees and the transaction was loans advanced by the appellant to Mr.L. Anil Kumar whereas the appellant explained the same to be in thousands of rupees which were given for miscellaneous expenses. ....
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....stered Society) Vs. Union of India in Writ Petition (Civil) No.505 of 2015 dated 2.7.2018 [2017] 394 ITR 220 (SC) wherein considered and observed that the entries in the loose papers/sheets are not "books of accounts" and has no evidentiary value u/s 34 of the Indian Evidence Act. The Hon'ble Supreme Court dismissing the writ petition filed by Common Cause, a registered society, refused to give nod to investigate against the Sahara and Birla Groups in the alleged payoff scandal. The factual setting of the case are that, a search was conducted by the CBI in the premises of Birla Groups, as a result of which, certain incriminating materials and an amount of Rs. 25 crores were recovered. CBI referred the matter to Income Tax Department. In another search, the IT department recovered certain incriminating materials and unaccounted money of Rs. 135 crores from Sahara Group of Companies. Allegedly the department recovered certain print out of excel sheets showing that Rs. 115 crores were paid to several public figures. The settlement commission granted immunity to the Sahara Group of Companies on ground that the scrutiny of entries on loose papers, computer prints, hard disk, pen drives,....
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.... have been made on mere presumption of existence of incriminating material. 19. Undisputedly, during the period of search, no incriminating material appears to have been found. However, the Revenue proceeded to issue notice under Section 143(2) of the Act on the pretext of the statements of the Directors of the respondent-assessee companies recorded under Section 132(4) of the Act and material seized from the search conducted on Jain group of companies. The assessment order was also passed under Section 143(3) read with Section 153C of the Act making additions under Section 68 of the Act. 20. However, it is an undisputed fact that the statement recorded under Section 132(4) of the Act has better evidentiary value but it is also a settled position of law that addition cannot be sustained merely on the basis of the statement. There has to be some material corroborating the content of the statements. 21. In the case of Kailashben Manharlal Chokshi v. CIT^1, the Gujarat High Court held that the additions could not be made only on the basis of admissions made by the assessee, in the absence of any corroborative material. The relevant paragraph no. 26 of the sa....
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.... under the Act as expressly mandated by virtue of the Explanation to section 132(4) of the Act. However, such statements on a stand alone basis without reference to any other material discovered during search and seizure operations would not empower the Assessing Officer to make a block assessment merely because any admission was made by the assessee during search operation. [Emphasis supplied] 23. In our opinion, the Act does not contemplate computing of undisclosed income solely on the basis of statements made during a search. However, these statements do constitute information, and if they relate to the evidence or material found during the search, they can be used in proceedings under the Act, as specified under Section 132(4) of the Act. Nonetheless, such statements alone, without any other material discovered during the search which would corroborate said statements, do not grant the AO the authority to make an assessment. 24. Coming to the findings of the ITAT with respect to incriminating material in the case of M/s Pavitra Realcon Pvt. Ltd and M/s Delicate Real Estate Pvt. Ltd, it is seen that the ITAT has explicitly held in paragraph no. 18 that no ad....
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....tions should be strictly made on the basis of evidence found in the course of the search, or other post-search material or information available with the Assessing Officer which can be related to the evidence found, it does not mean that the assessment "can be arbitrary or made without any relevance or nexus with the seized material. Obviously, an assessment has to be made under this section only on the basis of the seized material." [Emphasis supplied] 27. Recently, this Court, in the case of Saksham Commodities Limited v. Income Tax Officer, Ward 22(1), Delhi & Anr^6, while relying upon the decision of the Supreme Court in Abhisar Buildwell (supra) and this Court's decision in the case of CIT v. RRJ Securities Ltd.7, upheld the position of law that the AO would not be justified to assess income in case no incriminating material is found during the search. The relevant paragraph is reproduced herein below: - "54. In any case, Abhisar Buildwell, in our considered opinion, is a decision which conclusively lays to rest any doubt that could have been possibly harboured. The Supreme Court in unequivocal terms held that absent incriminating material, the AO wo....
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....the date of initiation of proceedings under Section 153C of the Act is concerned, it is apposite to refer to our decision in the case of CIT v. Ojjus Medicare (P) Ltd.8 This Court, in the said case, reiterated the already settled law that the date of initiation of assessment proceedings under Section 153C would be calculated from the date of handing over of the books of accounts, documents or assets seized to the jurisdictional AO of the non-searched person. The relevant paragraphs of the said decision are extracted herein below: - "K. SUMMARY OF CONCLUSIONS 119. We thus record our conclusions as follows: A. Prior to the insertion of Sections 153A, 153B and 153C, an assessment in respect of search cases was regulated by Chapter XIVB of the Act, comprising of Sections 158B to 158BI and which embodied the concept of a block assessment. A block assessment in search cases undertaken in terms of the provisions placed in Chapter XIVB was ordained to be undertaken simultaneously and parallelly to a regular assessment. Contrary to the scheme underlying Chapter XIVB, Sections 153A, 153B and 153C contemplate a merger of regular assessments with those that ....
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....llows lines pari materia with Section 153A. D. The First Proviso to Section 153C introduces a legal fiction on the basis of which the commencement date for computation of the six year or the ten year block is deemed to be the date of receipt of books of accounts by the jurisdictional AO. The identification of the starting block for the purposes of computation of the six and the ten year period is governed by the First Proviso to Section 153C, which significantly shifts the reference point spoken of in Section 153A(1), while defining the point from which the period of the "relevant assessment year" is to be calculated, to the date of receipt of the books of accounts, documents or assets seized by the jurisdictional AO of the non-searched person. The shift of the relevant date in the case of a non-searched person being regulated by the First Proviso of Section 153C(1) is an issue which is no longer res integra and stands authoritatively settled by virtue of the decisions of this Court in SSP Aviation and RRJ Securities as well as the decision of the Supreme Court in Jasjit Singh. The aforesaid legal position also stood reiterated by the Supreme Court in Vikram Sujitkumar Bha....
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....AYs immediately preceding the AY in which the satisfaction note was recorded by the AO of the respondent- assessee companies. 30. Further, in the case of M/s Design Infracon Pvt. Ltd., the ITAT held that there is violation of principles of natural justice as neither the statement of owner of Jain group of companies was provided to the said company, nor the opportunity of cross-examination was given. The ITAT in paragraph no. 23 has held as under: - "23. Now, coming to Design Infracon (P) Ltd., we find from the material available on record that there is brazen violation of principles of natural justice inasmuch as neither the statement of Mr. Jain recorded at the time of search nor his cross- examination was provided to the assessee by both the lower authorities despite specific and repeated requests made by the assessee in this regard. The Hon'ble Supreme Court in the case of M/s Andaman Timber Indusgies vs. CCE reported in 281 CTR 241 has held that not giving opportunity of cross-examination makes the entire proceedings invalid and nullity. The Co- ordinate Bench of the Tribunal in the case of Best City Infrastructure Ltd. (supra) has also held that not provi....
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..... Now, the law is well settled that tax authorities entrusted with the power to make assessment of tax discharge quasi- judicial functions and they are bound to observe principles of natural justice in reaching their conclusions. It is true, as pointed out by this Court in Dhakeswari Cotton Mills Ltd. v. CIT [AIR 1955 SC 154 : (1955) 1 SCR 941 : (1955) 27 ITR 126] that a taxing officer "is not fettered by technical rules of evidence and pleadings, and that he is entitled to act on material which may not be accepted as evidence in a court of law", but that does not absolve him from the obligation to comply with the fundamental rules of justice which have come to be known in the jurisprudence of administrative law as principles of natural justice. It is, however, necessary to remember that the rules of natural justice are not a constant: they are not absolute and rigid rules having universal application. It was pointed out by this Court in Suresh Koshy George v. University of Kerala [AIR 1969 SC 198 : (1969) 1 SCR 317 : (1969) 1 SCJ 543] that "the rules of natural justice are not embodied rules" and in the same case this Court approved the following observations from the jud....
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....m the search of Jain group of companies belonged to the respondent-assessee group and the same is incriminating, vitiates the entire assessment proceedings. 36. Accordingly, we find no reason to intermeddle with the order of the ITAT which has rightly set aside the assessment order and deleted the additions made therein. 37. In view of the aforesaid and on the basis of the findings of fact arrived at before the authority, these appeals do not raise any substantial question of law and consequently, they stand dismissed. Pending applications, if any, are also disposed of." 20.14 Further, Hon'ble Supreme Court in the case of Common Cause (A registered Society) Vs. Union of India in Writ Petition (Civil) No.505 of 2015 dated 2.7.2018 [2017] 394 ITR 220 (SC) wherein considered and observed that the entries in the loose papers/sheets are not "books of accounts" and has no evidentiary value u/s 34 of the Indian Evidence Act. The Hon'ble Supreme Court dismissing the writ petition filed by Common Cause, a registered society, refused to give nod to investigate against the Sahara and Birla Groups in the alleged payoff scandal. The factual setting of the case are tha....
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.... the Tribunal at paras 6 and 6.1 has held as under: "6. We have heard both the parties, gone through the orders of the authorities below. Shri Lanka Anil Kumar is an employee of M/s Navaratna Estates Ltd. A search u/s 132 was conducted in the residence of Shri Lanka Anil Kumar and certain sums were found in whatsapp messages in digits. When asked to explain, Shri Anil Kumar stated that the amounts were written in thousands represent lakhs and the total sum of Rs. 1,05,00,000/- was taken as loan from the assessee in cash for his business purposes. When confronted with the assessee, he explained that the amounts mentioned in thousands are correct and the total amount would be in the range of Rs. 5,000/- and Rs. 10,000/- given to Shri Anil Kumar to meet the petty cash or miscellaneous expenses from M/s Navaratna Estates during registration of properties. A search u/s 132 was conducted in the case of Shri Lanka Anil Kumar as well as the assessee and the survey u/s 133A was conducted in the case of M/s Navaratna Estates. No evidence was found by the department either in the premises of the assessee or in the premises of M/s Navaratna Estates, having given loan to Sri Anil Kumar....
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....vanced by the appellant to Mr.L. Anil Kumar whereas the appellant explained the same to be in thousands of rupees which were given for miscellaneous expenses. Mr.L. Anil Kumar also took similar stand in his assessment proceedings and said that the statement given during Search was under duress. The AO has not brought on record any evidences as to utility of such amount nor any other corroborative evidence to support the findings. Such evidences(Messages) without any supporting/corroborative along with admission of third person cannot be, basis for AO to come to conclusion and make addition in the assessment order. The low or the issue is laid down by the jurisdictional High Court, and followed by ITAT consistently in the following cases. * K. V. Lakshmi Savitri Devi Vs ACT 148 ITJ 517 (Hyd). * K. V. Lakshmi Savjtri Devi Vs ACIT ITTA 563 of 2017 (AP)(HC) * Jawahar Bhai Atmaram Hathiwala Vs ITO 128 ITJ 36 (Ahd) * DCIT Vs B. Vijaya Kumar ITA No.930 & 931 of 2009 (Hyd). * CIT Vs R. Nalini Devi ITTA 232 of 2013 (A. P) * CIT Vs P. V Kalyana Sundaran (2007) 294 ITR 49 * Venkata Rama Sai Developers Vs DCIT ITA 453/Vizag/2012. ....