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2025 (5) TMI 1635 - AT - Income TaxAssessment made u/s 153A - validity of the search conducted u/s 132 - Additions made on account of unexplained investment in jewellery u/s 69A - HELD THAT - As noted that during the course of search and seizure u/s 132 of the Act document market as A/KG/10 was found which is affidavit furnished to the Returning Officer in which there is no jewellery mentioned in the name of assessee and in the name of wife only 350 gms were declared. AO received information u/s 133(6) of the Act with the Lokayukta and noted that there is ownership of jewellery of 1500 gms in the assessee s name and 4500 gms in the name of his spouse. Accordingly the AO on the basis of seized material and information received made addition under section 69A. Assessee has strongly contested that addition cannot be made under section 69A of the Act since no physical gold jewellery belonging to the assessee as well as his spouse was found. During the course of search and seizure action under section 132 of the Act we noted that there was no jewellery seized. Only the AO has made addition on the basis of an affidavit found during the search filed with the Returning Officer marked as A/KG/10 and information received under section 133(6) of the Act from Lokayukta which cannot be treated as incriminating material found during the course of search. The law is now settled by the Supreme Court that for making addition u/s 153A of the Act for the unabated / completed assessment the addition can be made only on the basis of seized material unearthed during the course of search proceedings. The information received from Lokayukta was not found during the course of search. As contested that the AO has no jurisdiction to issue notice u/s 153A of the Act since no incriminating documents were found for the impugned AY 2013-14 - During the course of search there was no pending assessment proceedings for the AY 2013-14 as on the date of search and the time limit for issuance of notice u/s 143(2) of the Act had also expired. Therefore this year is to be considered as unabated assessment. The affidavit found does not contain any gold jewellery in the name of assessee. As in the case of PCIT Vs. Abhisar Buildwell (P) Ltd. 2023 (4) TMI 1056 - SUPREME COURT held that income of any Assessment Year which does not abate on the date of search under section 132 of the Act cannot be disturbed in the absence of incriminating material pertaining to such Assessment Year being found and seized in search u/s 132. Whether the copy of the affidavit dated 01.06.2012 filed by the assessee before the Returning Officer for the purpose of contesting in election which was found and seized during the search u/s 132 can be treated as incriminating document found and seized during the search? - The information contained in the document by itself cannot be considered as incriminating. It will assume the character of being incriminating in nature only when it is compared to any other material found and seized during the search and which prima facie disproved the content of this affidavit filed before the Returning Officer. AO has compared the contents of these affidavits failed before the Returning Officer with a declaration of assets as on 31.03.2013 as declared by the assessee before the Lokayukta in which the assessee has declared that he owns 1500 gms of jewellery and his wife owns 4500 gms of jewellery as on 31.03.2013. This declaration of assets made before the Lokayukta was obtained by the AO from the Office of the Lokayukta under section 133(6) of the Act during the assessment proceedings subsequently and the same was not found and seized in the search proceedings under section 132 of the Act. This declaration of assets as on 31.03.2013 filed before the Lokayukta not being found during the search partakes the nature of other information in the possession of the AO. Addition made by the AO are based on the document which was not found during the search under section 132 of the Act and which is in the nature of other information as per the decision of the AO. The AO could have used this information to reopen the assessment under section 147 of the Act subject to the fulfilment of the preconditions therein. But he does not have jurisdiction to make these additions in the assessment proceedings under section 153A - Assessee appeal allowed. Assessment u/s 153A - Addition made by the AO is only based on the material marked as A/KG/3 AND A/KG/9 found during the course of search - Law is now settled that entries in loose sheets or diaries cannot be relied upon to make additions in the absence of corroborative evidence. From the above discussion we find that presumption u/s 132(4A) is rebuttable presumption. Statement u/s 132(4) is no doubt an important evidence while making presumption u/s 132(4A). Addition u/s 69 of the Act can be made if the explanation offered by the assessee is not found satisfactory. In a search case where some material or loose paper is found the Department is to follow certain procedure viz. the assessee is to be confronted on the material found at the time of search. Examination of all concerned parties should also take place. If one were to examine the facts of the case on hand keeping the ratio of the above cited decisions it is not in dispute that the entries in Diary (A/KG/3) is not in the handwriting of the assessee and further the author of the same is unknown. The assessee has also denied any knowledge of its ownership and its contents. Under these circumstances the AO cannot rely upon the provisions of Section 292C of the Act to come to a conclusion that the figures in the Diary represent the undisclosed income of the assessee without any corroborative evidence to support. In the case of this assessee it is clear that even though the Revenue is of the opinion that the assessee has not given a satisfactory explanation of the contents of the Diary found in residence but that by itself does not allow the AO to make addition. An addition can be made only if these contents in the Diary which was found are actually connected to the assessee s transactions for the respective Assessment Years. We find that in the case of CIT Vs. M/s. Khosla Ice and General Mills 2013 (1) TMI 451 - PUNJAB AND HARYANA HIGH COURT has captured the essence of this proposition and explained the same in a lucid manner as held when a dumb document is to be made the basis for an addition to fasten tax liability on the assessee the burden is on the AO to establish with corroborative evidence that the nature of entries contained therein reflect income and also that such income was in the control of the assessee. The explanations and the narrative given by the AO to explain the transactions which are indicated by the entries in both the seized materials A/KG/3 and A/KG/9 are his own and do not emanate from any seized material or any statement/s recorded from any person/s who are supposed to be a party to the transaction/s. The narrative given by the AO however interesting cannot be the basis of addition as the same are arising only out of the wild and speculative imagination of the AO. AO relies upon one dumb document A/KG/9 to prove the other dumb document A/KG/3. CIT(A) is also grossly wrong in accepting the same and confirming the addition. We delete the substantive addition made for the AY 204-15; the protective addition made for the AY 2015-16 and the substantive addition for the Assessment Year 2016-17 by the AO which are all based on entries found in the seized material A/KG/3. Unexplained Investment in Jewellery u/s 69A - Quantum of jewelry as declared statement filed before the Lokayuktha reflects the correct state of affairs of the assessee and his wife then one cannot ignore the fact the same quantum has been declared in the statements filed before the Lokayuktha for the earlier years also. An addition can be made to the income of the of the assessee for the AY 2016-17 only in respect of the jewellery found to be acquired in the AY 2016-17 for which the assessee is unable to offer a satisfactory explanation about the nature and source of acquisition. In the present case if one were to go by the statement filed before Lokayuktha and relied upon by the AO the neither the assessee nor his wife have acquired any jewellery during the Financial Year ended 31/03/2016 relevant to the Assessment Year 2016-17 and hence no addition is warranted under section 69A of the Act. If one were to take a view that the Jewellery physically found at the time of search represents the true and correct state of affairs then no addition is called for as the same has been accepted by the AO and he has not made any addition which is attributable to jewellery physically found at the time of search as he has not given any finding that any portion of the jewellery actually found stands unexplained. Additions on account of entries in seized material A/KG/3 A/KG/9 and undisclosed jewellery being deleted we have decided the issue only on the arguments advanced by both the parties.
Issues Presented and Considered
The core legal questions considered in the appeals for Assessment Years (AY) 2013-14 to 2016-17 primarily relate to:
Issue-Wise Detailed Analysis 1. Legality and Validity of Search under Section 132 Legal Framework and Precedents: Section 132 empowers authorities to conduct search and seizure based on "reason to believe" which, per the Explanation inserted by Finance Act 2017 (retrospective from 1962), is not required to be disclosed to any person or authority including the Tribunal. The Supreme Court has upheld the constitutional validity of section 132 and held that the reason for search need not be disclosed (Pooran Mal v. Director of Inspection). The Tribunal cannot adjudicate the legality of search proceedings; such challenge is maintainable only by writ petition before the High Court. Court's Interpretation and Reasoning: The Tribunal affirmed that the appellant's challenge to the validity of the search is not maintainable before it. The appellant's contention that the search was based on suspicion without prior information was rejected based on the statutory bar on disclosure of "reason to believe." The appellant's failure to challenge the search through writ petition forfeited his right to question the search validity later. Application of Law to Facts: The search conducted on 15.03.2016 was held valid and legal. The Tribunal relied on binding Supreme Court precedents and relevant High Court rulings to dismiss the ground. Conclusion: The challenge to the legality and validity of search under section 132 was dismissed. 2. Jurisdiction to Pass Assessment under Section 153A in Absence of Incriminating Material Legal Framework and Precedents: Section 153A applies to assessments where a search is conducted. However, for completed or unabated assessments, the Supreme Court in PCIT v. Abhisar Buildwell (P) Ltd. held that no addition can be made under section 153A in the absence of incriminating material found during search. The AO's jurisdiction to reopen such assessments is limited to section 147/148 subject to conditions. Court's Interpretation and Reasoning: For AY 2013-14, the affidavit found during search (A/KG/10) declaring nil jewellery was not incriminating by itself. The information obtained later from Lokayukta under section 133(6) was not found or seized during the search and thus constituted "other information" not empowering the AO to assess under section 153A for that year. The Tribunal held that additions for AY 2013-14 under section 153A were without jurisdiction and liable to be deleted. Application of Law to Facts: The Tribunal distinguished between documents found during search and other information obtained later. It held that the AO could have reopened AY 2013-14 under section 147/148 but could not assess it under section 153A without incriminating seized material. Conclusion: Additions for AY 2013-14 under section 153A were quashed for want of jurisdiction. 3. Validity of Notice under Section 129 and Approval under Section 153D Legal Framework and Precedents: Section 129 relates to change of incumbent of an income-tax authority and provides that the new incumbent may continue proceedings and the assessee may demand rehearing. The Supreme Court and various High Courts have held that objections to jurisdiction must be raised before the AO and failure to do so amounts to waiver. Section 153D requires approval of the Joint Commissioner for assessment under section 153A. Court's Interpretation and Reasoning: The Tribunal found that the appellant did not demand rehearing under section 129 and thus could not object to jurisdiction on that ground at a later stage. The AO had obtained valid approval under section 153D, and copies were on record. The Tribunal dismissed grounds challenging notice validity and approval. Application of Law to Facts: The Tribunal relied on case law holding that jurisdictional objections must be timely raised and found no procedural infirmity in issuance of notices or obtaining approvals. Conclusion: The assessment proceedings were held valid with respect to notices under section 129 and approvals under section 153D. 4. Violation of Principles of Natural Justice Legal Framework and Precedents: Principles of natural justice require that the assessee be given adequate opportunity to defend and be informed of the case against him. The Supreme Court has held that mere issuance of notices is not sufficient unless the assessee is made aware of the real case to defend. Court's Interpretation and Reasoning: The Tribunal noted that multiple notices were issued to the appellant and his representatives to produce information and appear for proceedings. The appellant failed to file power of attorney for his representatives. The AO confronted the appellant with seized materials during statements. The Tribunal found no violation of natural justice. Application of Law to Facts: The appellant's claim that he was not given opportunity or copies of seized materials was rejected as the record showed adequate opportunities and confrontation during statements. Conclusion: Grounds alleging violation of natural justice were dismissed. 5. Additions Based on Seized Diaries and Loose Sheets (A/KG/3 and A/KG/9) Legal Framework and Precedents: The Supreme Court in CBI v. V.C. Shukla and Common Cause v. UOI held that loose sheets, diaries, and non-regularly maintained books of account are not admissible evidence under section 34 of the Evidence Act and are "dumb documents" without evidentiary value unless corroborated by independent evidence. The burden lies on the AO to establish corroboration and ownership. Entries in documents not in the assessee's handwriting or not admitted by him cannot be presumed to be his income without further proof. Section 292C provides presumptions but they are rebuttable and do not automatically convert notings into income. Court's Interpretation and Reasoning: The Tribunal found that the diary A/KG/3 was not in the appellant's handwriting, the author was unknown, and the appellant denied ownership and knowledge of its contents. The loose sheets A/KG/9 were in the appellant's handwriting but were unintelligible and "dumb documents." The AO relied solely on these documents without independent corroboration such as statements from alleged parties or other evidence. The Tribunal held that additions based on these materials were not sustainable. The Tribunal also noted that the entries in the diary were not contemporaneous but written at one time, spanning multiple years, reducing their reliability. The AO's narrative explaining the entries was speculative and imaginative. Application of Law to Facts: The Tribunal applied the principles from cited precedents and held that the AO failed to discharge the burden of proving these documents reflected undisclosed income of the appellant. The statutory presumptions under sections 132(4A) and 292C were rebutted by denial of ownership and lack of corroboration. Treatment of Competing Arguments: The Revenue argued that the diary entries were corroborated by handwriting in A/KG/9 and that the presumption under section 292C applied. The Tribunal rejected this, holding that one dumb document cannot corroborate another and that presumption does not extend to presumed income without proof. The Revenue's reliance on a prior Tribunal decision was distinguished on facts and superseded by High Court order allowing appeal on legal grounds. Conclusion: Additions based on seized diary and loose sheets for AYs 2014-15, 2015-16, and 2016-17 were deleted. 6. Additions on Account of Unexplained Jewellery under Section 69A Legal Framework and Precedents: Section 69A applies when jewellery is found and owned by the assessee but not recorded in books of account and no satisfactory explanation is offered. Valuation for jewellery additions must be based on a valuation report from a Valuation Officer under Section 12A of the Wealth Tax Act. Additions cannot be made on jewellery not physically found or where declared jewellery includes ancestral jewellery not owned by the assessee. Court's Interpretation and Reasoning: The Tribunal noted that no jewellery in excess was physically found during search; rather, the addition was based on difference between jewellery declared before Lokayukta and jewellery found. The appellant explained that the higher declared jewellery included ancestral family jewellery and filed revised returns accepted by Lokayukta. The Tribunal held that section 69A does not apply to jewellery not physically found and that additions based on excess declared jewellery over physically found jewellery were not sustainable. The Tribunal also held that valuation adopted by AO was not based on a valid valuation report under Section 12A and was thus improper. Application of Law to Facts: The Tribunal accepted the appellant's explanation of ancestral jewellery and revised returns and found no unexplained investment in jewellery for AY 2016-17. Treatment of Competing Arguments: The Revenue contended that the difference represented unexplained investment and relied on statutory presumptions. The Tribunal rejected this, emphasizing the absence of physical jewellery and proper valuation. Conclusion: Additions under section 69A for unexplained jewellery for AY 2016-17 were deleted. 7. Protective Assessments in Absence of Substantive Assessments Legal Framework and Precedents: Protective assessments cannot be sustained in the absence of substantive assessments. ITAT decisions have held that protective assessments are contingent on substantive assessments. Court's Interpretation and Reasoning: The Tribunal found that protective additions made in the appellant's hands in absence of substantive additions in the spouse's hands were bad in law and liable to be deleted. Application of Law to Facts: Protective additions of jewellery in appellant's hands without substantive assessment in spouse's hands were deleted. 8. Levy of Interest under Sections 234A, 234B, and 234C The Tribunal noted that the quantum, period, and rate of interest levied were not clearly discernible from the assessment orders and the CIT(A) merely held the interest as consequential without specific adjudication. The Tribunal kept these grounds open as the substantive additions were deleted. Significant Holdings "The reason to believe as recorded by the Income tax authority under section 132(1) shall not be disclosed to any person or any authority or the Appellate Tribunal." This statutory bar precludes adjudication of search validity before the Tribunal. "In case no incriminating material is unearthed during the search, the AO cannot assess or reassess taking into consideration the other material in respect of completed/unabated assessments." (PCIT v. Abhisar Buildwell (P) Ltd.) "Loose sheets or scraps of paper cannot be termed as 'book' for they can be easily detached and replaced... Entries in loose papers/sheets are not relevant and not admissible under section 34 of the Evidence Act." (CBI v. V.C. Shukla; Common Cause v. UOI) "Additions cannot be made merely on the basis of notings on loose sheets which are dumb documents having no evidentiary value. The onus lies on the Department to collect corroborative evidence." (Multiple ITAT decisions including Sri Devaraj Urs Educational Trust) "Protective assessment cannot be made without substantive assessment." (ITO v. M/s Fussy Financial Services Pvt Ltd; Suresh K Jajoo v. ACIT) "Valuation for jewellery additions must be based on a valuation report furnished by a Valuation Officer appointed under Section 12A of the Wealth Tax Act." (V. Selvaraj vs DCIT) Final Determinations:
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