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2019 (10) TMI 998 - AT - Income TaxAssessment u/s 153A - proof of incrementing material exhibiting escapement of taxable income - HELD THAT:- No material was found during the course of search relating to this assessment year exhibiting escapement of taxable income or availability of undisclosed income for the purpose of assessment under section 153A of the Income Tax Act. If there is no material available, and on re-appraisal of that very material addition has been made by the AO, then such assessment order is not sustainable in the eyes of law, because, the AO has no jurisdiction to invoke section 153A in view of principle laid down by the Hon’ble Delhi High Court in the case of Kabul Chawla [2015 (9) TMI 80 - DELHI HIGH COURT] . No proceedings were pending on the date of search for this assessment. Therefore, nothing would abate for making a fresh assessment under section 153A of the Act. We have perused the comments of the AO at the time of hearing. The AO has not given any comments qua first fold of grievance shown by the assessee. His comments are related to various additions made by him with regard to unexplained income from Somnath building, agriculture income etc. Accordingly, we allow the appeal of the assessee, and quash the assessment order passed under section 153A Addition based on declaration made u/s 132(4) - HELD THAT:- If something has been inherently gone wrong, at the time of search, then during the assessment proceedings, that facts should have been ascertained by the AO. It was for the AO to call for independent witness as well as accountant of the assessee in support of the report of the investigation wing. Onus is not upon the assessee. It is the AO who has to first establish that some undisclosed expenditure was incurred by the assessee and details recorded to that were found. On the basis of simple declaration even under section 132(4) addition cannot be made. Revenue authorities have failed to carry out this inquiry, and therefore, after relying upon the decision of CIT Vs. Maulikkumar K. Shah [2007 (7) TMI 267 - GUJARAT HIGH COURT] and K.P.M. Nair Vs. ACIT [2016 (8) TMI 514 - GUJARAT HIGH COURT] we do not have any hesitation that addition is not sustainable. Assessment u/s 153A - Addition of FDRs - HELD THAT:- For the purpose of the assessment order under section 153A, addition could be made only on the basis of seized material. If the FDR is in the name of the assessee, but it was also shown as investment in the company and reflected in the balance, then it was brought to the notice of the Department. This fact ought to have been verified before making addition in the hands of the assessee. Therefore, we deem it appropriate to set aside this issue to the file of the AO for limited purpose that the ld.AO shall call for details from Kenson Motor P.Ltd. and find out whether the company has financed the purchases of this FDR and has accounted in its books of accounts. If it is found that the company has not financed it, then FDR stands in the name of two persons and to the extent share of the assessee is there, addition be made to that extent - according to the assessee, it is in the name of Shri Rajeshbhai, and therefore, the addition be restricted to 50% of ₹ 5,00,000/-. The ld.AO shall verify this fact, and re-adjudicate the issue after hearing the assessee. Undisclosed rental income - stand of the assessee is that since this is the assessment order framed under section 153A, therefore, no addition ought to be made without supporting of any seized material - HELD THAT:- No merit in the contention of the ld.counsel for the assessee, because this search was conducted on 11.10.206, and this is a regular as well as search assessment year. In this year, the AO can explore other items of income required to be assessed in the regular assessment. Though, we accept alternative contention of the assessee, because, we have already assessed ₹ 10 lakhs on account of unexplained cash available with the assessee. The AO is directed to give telescopic benefit of this ₹ 30,000/- out of ₹ 10 lakhs assessed in this year. The reason for this direction is that the AO has assessed it on account of unexplained credit in the books. This ground of appeal is partly allowed. Penalty u/s 271(1)(c) - HELD THAT:- Cash of ₹ 10 lakhs was found which has not been accounted in the books. He could not give any explanation even in the penalty proceedings. As far as the addition of ₹ 9,000/- is concerned, the assessee has shown rental income from Kenson Sales Corporation. The stand of the assessee has not been accepted by the AO. The assessee has given an explanation that he has rental income, but stand of the assessee was not accepted. This explanation was not found to be false by the AO. Therefore, on the addition of ₹ 9,000/- no penalty be imposed upon the assessee. However, the ld.AO to calculate penalty imposable upon the assessee only on addition of ₹ 10,00,000/-. The appeal of the assessee is partly allowed. Invocation of jurisdiction under section 153A - Non disclosure of agricultural income - HELD THAT:- Search was carried out on 11.12.2006. Time limit to issue notice under section 143(2) on the original return of income in the Asstt.Year 2006-07 was not expired till search has taken place. Thus, the assessment in this year has to be termed as not attained finality. It has abated, and fresh assessment under section 153A has to be passed. No doubt the AO was not possessing any incriminating material for making addition. In such situation, he could determine the taxable income according to the regular books of accounts. He has not made any addition separately, which is associated with search. It is the assessee who has shown agriculture income and rental income for the first time in response to notice under section 153A. Therefore, these issues were required to be examined while re-assessing the income for this assessment year as per section 153A Agricultural income - assessee has disclosed agriculture income, but could not substantiate that fact - This issue deserves to be set aside to the file of the AO because the AO has not called for the land holding possessed by the assessee. It is to be ascertained whether the assessee is having any agriculture land; if yes, whether it is cultivatable or barren land, after calling from the land record, the AO should determine whether the assessee has any agriculture income or not. Rental income shown by the assessee AO has not discussed this issue in detail. A perusal of the CIT(A)’s order would indicate that building from which rental income is being claimed, owned by seven persons. Upto and unless actual documents exhibiting ownership of the building, and how rental income is being recognized in the hands of the assessee is ascertained, it is not advisable to make addition under section 68. Therefore, we deem it appropriate to set aside both orders to the file of the AO for re-adjudication.
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