2024 (5) TMI 1581 - AT - Income Tax

Assessment u/s 153A - Validity of approval u/s 153D - allegation of the appellant that the Addl. CIT Chandigarh has granted the approval u/s 153D in mechanical manner and without application of mind - HELD THAT - Allegation of the appellant has no meaning as the approval is an administrative action which is required to be based on existence of set of circumstances and on subjective satisfaction as per the provisions of the Act. Approval u/s 153D being an official act provided under the statute it is to be presumed that before according approval the Range Head has looked into the records applied his mind and he did not find any reason to disapprove the order passed by the Assessing Authority and thereafter he has accorded approval. In the given facts of the case it can be said that the Addl. CIT has applied his mind on the issue involved and has accorded his approval in accordance with the provisions of the Act. Such approval cannot be said as mechanical and without application of mind and the additional ground of appeal so raised by the assessee was dismissed. No search u/s 132 was carried out on the appellant and only a survey u/s 133A was carried out - HELD THAT - Documents thus have been found and seized from the business premises of the assessee firm and the panchnama has been drawn accordingly. We are therefore of the considered view that the search has been duly authorised initiated and conducted at the business premises of the assessee firm. As far as survey operations u/s 133A is concerned we find that the same has been carried at Maya Garden Enclave Jakhal Road Sunam on 13/07/2016 which is the site office of the assessee firm and its sister concern. The fact that the survey operations have been simultaneously carried at the site office besides the search proceedings u/s 132 at its business premises doesn t vitiate the assumption of jurisdiction by the AO u/s 153A and the consequent proceedings therein. In light of the aforesaid discussions we are unable to accede to the various contentions so raised by the ld AR. Further the various authorities quoted by the ld AR not doubt hold their respective field but we find that in the facts of the present case they are clearly distinguishable and none of the authorities support and aid the case of the assessee firm. In the result the additional ground of appeal so raised by the assessee firm is hereby dismissed. Validity of assessment proceedings u/s 153A without following the mandatory procedure u/s 153C of the Act - As we have held above the search has been conducted at the business premises of the assessee firm and certain loose papers relating to business dealings/transactions of the assessee firm have been found and seized and therefore in such circumstances where the AO basis such documentation has initiated and completed the assessment proceedings and passed the assessment order u/s 153A we do not see any infirmity therein. In particular in facts of the present case where the person searched and the person assessed is one and the same there is no requirement to follow the procedure as prescribed u/s 153C which is in context of person other than person searched and where the AO has framed the assessment u/s 153A we do not see how there could be any legal infirmity therein on the said ground. We are therefore unable to accede to the contentions so advanced by the ld AR and agree with the ld CIT/DR in this regard and in the result the ground of appeal is dismissed. Validity of assessment order passed u/s 153A since approval u/s 153D has been granted by the Additional CIT without due application mind and merely in ritualistic manner - Addl. CIT granted the prior approval u/s 153D without going through the seized record as all the relevant material was not forwarded to the Addl. CIT and which were thus not considered before he granted the approval. The same is also evident from the fact that the ld CIT(A) has to exercise his enhancement powers. Had the relevant material being brought to the notice of the Add. CIT it is likely that he would have instructed the AO appropriately and the assessment order would have been passed taking into consideration all relevant material and documents available on record. Accordingly we are compelled to hold that the approval by the approving authority u/s 153D has been granted in a mechanical manner and without application of mind and consequentially the assessment order passed by the AO on such approval deserve to be setaside as not passed in accordance with the mandate of the statue and laid down jurisprudence. The ground of appeal so taken by the assessee firm is thus allowed. No incriminating material for the year in question was found during search and year in question was a case of unabated/completed assessment - In the instant case it is an undisputed fact that as on the date of search the original assessment proceedings already stood completed. It is also an undisputed fact that only document claimed to be incriminating material by the Revenue is a booking slip and more particularly noting on the backside of the said booking slip for one of the plots of land. It is noted that handwritten noting at backside of the booking slip for plot no. 10 is undated and date in front side do not pertain to year in question. This clearly proves that the document in question do not pertain to the year in question. Therefore as per the law laid down in case of Abhisar Buildwell Pvt. Ltd. 2023 (4) TMI 1056 - SUPREME COURT AO could not have made addition in respect of an already completed assessment when no incriminating material pertaining to the year in question was found and seized during the course of search. Addition on extrapolation to 54 units when alleged material was found for 4 units only and further enhancement of addition by the ld CIT(A) by extrapolating to 128 units - The entire assessment proceedings and addition was based on noting on the backside of one of the booking receipt. The Ld. AR explained the normal business practice and contended that the said receipt was in the possession of Kashmiri Lal during the relevant period of time and the noting made on the backside was not in the handwriting of any partner or employee of the Assessee firm. It is also a fact that no material except above noting on the backside of a booking receipt was found which can support the alleged undisclosed transaction having been carried out. The AO did not bring on record any evidence to establish as to between which parties these transactions were carried out and also when these transactions were carried out. Rather there is an Affidavit of Kashmiri Lal as part of seized record wherein he admitted of having sold the plot @ Rs. 2000 p. sq. yrd on 06.08.2014 and 26.05.2020. Then the question arises as to how the appellant could have sold this very plot to Kashmiri lal on 28.12.2010 @ Rs. 6500/7000 p. sq. yrd. Therefore the entire addition based on that loose noting which infact has not been further corroborated by the Ld. AO is based on assumptions and presumptions and hence the same is liable to be deleted. There is clearly lack of tangible material and evidence on record as well as absence of any corroborative material on the basis of which addition could have been made. The AO was not justified in making addition on presumption and assumption and on estimate merely on the basis of noting on a solitary booking receipt ignoring rest all material available on record including the affidavit of Kashmiri Lal and having accepted similar transactions so undertaken by the assessee in other years and that too wrongly extrapolating to 54 units and the ld CIT(A) enhancing the extrapolation to 128 units. We therefore order the deletion of addition so made by the AO and the enhancement of so made by the ld CIT(A) and both the grounds of appeal are allowed. CIT(A) in assuming the powers of enhancement u/s 251 - validity of enhancement of income in the hands of the assessee firm without following the statutory procedure as so mandated under the law - CIT(A) has issued the show-cause an opportunity has been provided to the assessee firm to explain its position and enhancement has thereafter been made on matter arising out of the assessment proceedings that is in respect of sale of the plots of land numbering 128 as against 54 plots of land taken into consideration by the AO and applying the rate of Rs 7000 per sq yards. No new source of income has been brought to tax by the ld CIT(A). In Kanpur Coal Syndicate 1964 (4) TMI 18 - SUPREME COURT it was held by the Hon ble Supreme Court that the scope of power of the AAC is coterminous with that of the AO and he can do what the AO can do. In light of the same the contention raised by the Ld. AR that the ld CIT(A) has wrongly assumed jurisdiction to make enhancement of income in the present facts of the case is not acceptable and the ground of appeal no. 7 so taken by the assessee firm is hereby dismissed.

Summary

The core legal questions considered in this judgment revolve around the validity and correctness of assessment proceedings initiated under section 153A of the Income Tax Act, 1961, following search and seizure operations under section 132. The issues include whether the assessment was rightly framed given the nature of the search (or survey), the applicability of section 153C procedure when incriminating material was found at the premises of a partner rather than the firm itself, the correctness of additions made on the basis of seized documents and extrapolation thereof, the power of the Commissioner of Income Tax (Appeals) to enhance income under section 251, the validity of approval granted under section 153D, and the scope of additions in cases of completed assessments without incriminating material for the relevant year.

First, the question of whether a search under section 132 was conducted on the assessee firm or only a survey under section 133A was carried out was examined. The assessee contended that no search was initiated on the firm's premises and thus assessment under section 153A was invalid. The Revenue argued that the search warrant was served at the residential premises of a partner, which also served as the registered office of the firm, and that search is premises-specific rather than person-specific. The Tribunal analyzed the search warrant, appointment of witnesses, and panchnama, noting that although the appointment of witnesses and panchnama mentioned only the partner's name, the premises searched was the registered office of the firm and documents relating to the firm were seized. It was held that the search was duly authorized, initiated, and conducted at the firm's business premises, and the survey at a separate site office did not vitiate jurisdiction. The contention that absence of the firm's name in certain documents invalidated the search was rejected, distinguishing precedents relied upon by the assessee. Thus, the Tribunal concluded that valid search proceedings under section 132 were conducted on the assessee firm, validating the framing of assessment under section 153A.

Second, the issue of applicability of section 153C procedure was considered, as incriminating documents were found at the partner's premises rather than the firm's. The assessee argued that since the documents belonged to the firm but were found at the partner's residence, the procedure under section 153C should have been invoked, and direct use of such material in assessment under section 153A was illegal. The Revenue contended that since the firm and partner were covered under the same search and the documents related to the firm, section 153C was not applicable. The Tribunal found that documents seized related to the firm and were found at the partner's premises, who is a representative of the firm. Since both the firm and partner were covered under the search, and the documents pertained to the firm's business, the assessment under section 153A was valid without invoking section 153C. Hence, the challenge to the assessment on this ground was dismissed.

Third, the validity of approval granted under section 153D was challenged by the assessee on the ground that it was given mechanically without application of mind, as the Additional Commissioner of Income Tax (Addl. CIT) did not peruse the entire seized record or assessment record and granted approval on the same day it was received. The assessee highlighted that important affidavits and documents were not shown to the Addl. CIT, and the approval letter lacked any reasoning or indication of consideration. The Revenue contended that the Addl. CIT works in tandem with the Assessing Officer (AO), is apprised of developments, and that the approval was given after due consideration of the assessment record. The Tribunal examined the procedure and relevant case law, including decisions emphasizing that approval under section 153D is not a mere formality but requires judicious application of mind and examination of relevant material. It was noted that the Addl. CIT had insufficient time and material to apply mind properly and that the approval was granted mechanically. The Tribunal relied on authoritative judgments holding that mechanical or ritualistic approval vitiates the assessment order. Consequently, the approval under section 153D was held to be invalid and the assessment order based on such approval was set aside.

Fourth, the question of whether additions could be made under section 153A in respect of a completed assessment year when no incriminating material pertaining to that year was found during search was considered. The assessee relied on the Supreme Court ruling that in absence of incriminating material for a completed/unabated assessment year, no addition can be made under section 153A. The Revenue argued that since the disclosed portion of sale consideration was booked in the year in question, the undisclosed portion could be added. The Tribunal analyzed the Supreme Court and High Court precedents, emphasizing that incriminating material must pertain to the relevant assessment year for jurisdiction to exist under section 153A. It was observed that the only incriminating document was a handwritten noting on the backside of a booking receipt undated and relating to years other than the year under consideration. Therefore, no incriminating material for the assessment year was found, and additions could not be sustained. The Tribunal allowed the ground challenging additions on this basis.

Fifth, the correctness of additions made by extrapolating the alleged suppressed sale consideration from 4 plots (for which documents were found) to 54 plots by the AO and further enhancement by the CIT(A) to 128 plots was examined. The assessee argued that the addition should be restricted to the plots for which incriminating material was found, that the handwritten noting was not in the firm's handwriting, and that affidavits and sale deeds contradicted the AO's findings. The Revenue contended that the seized documents showed sale at higher rates, and extrapolation was justified. The Tribunal noted that the addition was based solely on a handwritten noting on the backside of a booking receipt, which was not rebutted by independent evidence but was contradicted by affidavits and sale deeds. The AO did not make any inquiry from the original allottees or third parties, and the addition was made on presumption and guesswork. The Tribunal held that extrapolation without corroborative material was impermissible, and additions made on such basis were unsustainable. The additions for both 54 and 128 plots were deleted.

Sixth, the power of the CIT(A) to enhance income under section 251 was challenged on the ground that the CIT(A) lacked jurisdiction and did not follow statutory procedure. The assessee argued that the CIT(A) enhanced income beyond the scope of the AO's findings and without proper procedure. The Revenue contended that the enhancement arose from the assessment proceedings and show-cause notice was issued, thus within jurisdiction. The Tribunal found that the CIT(A) issued a show-cause, gave opportunity to the assessee, and the enhancement related to the same source of income examined by the AO. Relying on Supreme Court precedent, it was held that the CIT(A) has plenary powers co-terminus with the AO and can enhance income arising from the assessment proceedings. Therefore, the enhancement was upheld.

Other grounds, including initiation of penalty proceedings and general grounds, were either not pressed or dismissed as infructuous.

Significant holdings include the following:

"The search has been duly authorised, initiated and conducted at the business premises of the assessee firm. The fact that the premises were used for residential purposes and also as a registered office of the assessee firm is not in dispute. The documents seized relate to the business dealings of the assessee firm and the panchnama has been drawn accordingly. Therefore, the search proceedings are valid and the assessment framed under section 153A is sustainable."

"Where incriminating material is found at the premises of a partner who is also a representative of the firm, and such partner and firm are covered under the same search, the procedure under section 153C is not required to be invoked separately for the firm. The assessment under section 153A can be validly framed on the basis of such material."

"Approval under section 153D is a statutory requirement and cannot be treated as a mere formality. It requires application of mind by the approving authority after examination of relevant assessment and seized records. Mechanical or ritualistic approval without application of mind vitiates the assessment order."

"In case of completed/unabated assessments, additions under section 153A can only be made if incriminating material pertaining to the relevant assessment year is found during search. In absence of such incriminating material, no addition is permissible."

"Additions based solely on extrapolation from seized documents relating to few units to other units without any corroborative material or inquiry are impermissible and must be deleted."

"The CIT(A) has plenary powers under section 251 to confirm, reduce, enhance or annul the assessment, including enhancement arising out of matters considered in the assessment proceedings, subject to statutory procedure and opportunity to the assessee."