9911796707
Case Laws
Acts
Notifications
Circulars
Classification
Forms
Manuals
Articles
News
D. Forum
Highlights
Notes
🚨 Important Update for Our Users
We are transitioning to our new and improved portal - www.taxtmi.com - for a better experience.
⚠️ This portal will be discontinued on 31-07-2025
If you encounter any issues or problems while using the new portal,
please
let us know via our feedback form
so we can address them promptly.
Follow us:
|
Home
2025 (7) TMI 1280 - AT - Income TaxValidity of assessment u/s 153A - incriminating Material found during the course of search action or not? - whether addition can be made in the cases in which assessment on the date of search stood completed and not abated? - HELD THAT - Section 153C starts with a non-obstante clause which covers the provisions of section 139 147 148 149 151 and 153 of the Income Tax Act. The purpose of the said non-obstante clause is that in case of a conflict between the provisions of section 153C and the other sections as mentioned above the special provisions of section 153C will prevail over the other general provisions of the Act. Even otherwise it is settled law that when a special law/provision is enacted that will prevail over the general provisions of the law/statute. As per the special provisions u/s 153C of the Act in case of any incriminating material is found during the course of a search action which is relating to a person other than the searched person then the procedure as laid down u/s 153C of the Act is to be followed for making assessment/reassessment of such other person. In that case if the Assessing Officer of the searched person is satisfied that the assets/material found during the search action relates to other person then the Assessing officer of the searched person is supposed to handover/send that material to the Assessing Officer having jurisdiction over such other person and further that the jurisdictional Assessing Officer of the said other person will have to record a satisfaction that such material has a bearing on the determination of income of such other person and the six assessment years preceding the date of receipt of such material/books of account gets reopened and the Assessing Officer of such other person is required to make assessment in accordance with the provisions of section 153C of the Act. It is not open to the Assessing Officer of such other person to use that material in a subsequent assessment carried out u/s 153A of the Act in case of such other person unless the proceedings u/s 153C are pending against such other person on the date of search. Reliance in this respect can be placed on the decisions of DCIT vs Shivali Mahajan 2019 (3) TMI 1196 - ITAT DELHI Trilok Chand Choudhry 2019 (9) TMI 95 - ITAT DELHI and Anand Kumar Jain 2021 (3) TMI 8 - DELHI HIGH COURT . Even there is no reference either in the assessment order or in the impugned order of the CIT(A) of any incriminating unearthed relating to the assessee in the said separate search action carried out in the case of a third party. Even the alleged statements did not constitute incriminating material against the assessee. In view of the above discussion the assessment orders passed u/s 153A in the 14 appeals as listed in the chart above are not sustainable hence the same are hereby quashed. Deemed Dividend u/s 2(22)(e) - assessee is substantial shareholder in loan grantor company - assessee has contended that that the ledger account of assessee in books of SEPL was a current and running ledger account wherein payments were being exchanged in very frequently and contain both type of entries i.e. giving and taking of the amount on frequent basis - HELD THAT - There is no denial of fact that the transactions between the assessee group company SEPL were like that of a current and running account. It is noticed that from time to time the assessee and SEPL had given and taken loan from each other as per the business needs. The transactions were continuous and running as per business needs and expediency. The case laws relied upon by the Ld. Counsel for the assessee in this respect are squarely applicable to the facts and circumstances of the case in hand. As demonstrated by assessee the issue of deemed dividend was raised in earlier regular assessment in assessee s own case for AY 2011-12. In the assessment order for that year passed prior to the search action AO had made addition in respect of the deemed dividend. However in appeal CIT(A) deleted the addition by following the above reasoning of mortgage of properties and giving of personal guarantees by the assessee for loans raised by the company by following the above decision of Hon ble Calcutta High Court in Pradip Kumar Malhotra 2011 (8) TMI 16 - CALCUTTA HIGH COURT The appeal of the revenue against the said order of the Ld. CIT(A) was dismissed by the this Tribunal 2016 (7) TMI 316 - ITAT CHANDIGARH hence the issue has attained finality. The issue is thus even otherwise squarely covered in favour of the assessee in his own case for the earlier assessment year. Considering all we hold that the additions made/confirmed by the lower authorities on this issue are not sustainable. Accordingly the impugned additions on this issue are ordered to be deleted. Difference in valuation of building/Immovable Property situated at Village Dasora Majra Hiltop Near Venus Remedies Jharmajri Baddi - As held time and again by various courts of law that the DVO s report on standalone basis without any corroborating material cannot be construed as incriminating material and hence the additions solely on the basis of the DVO s report are not sustainable. Counsel has submitted that the difference of amount of investment in the said property even as per the DVO s report is less than 10% and is liable to be ignored. The ld. Counsel has further submitted that if the difference of valuation on account of 20% less State PWD rates 10% to 15% saving on account of self-supervision/self-purchase of material is deducted then the resultant figure will be minus. As in Honest Group of Hotels 2001 (11) TMI 1016 - HIGH COURT OF JAMMU KASHMIR held that minor variations in valuation should not trigger additions under Section 69C in the absence of corroborative evidence. The Revenue failed to establish that the assessee incurred unrecorded expenses. Considering the above facts and settled legal position we hold that the addition made by the AO and sustained by the CIT(A) based solely on the DVO s valuation is not justified and the same is accordingly ordered to be deleted. The facts and issue involved in the appeals as given in chart above relating to the above issue/ground are identical hence our findings given above will accordingly apply to all the appeals /ITAs as given above in the chart and the identical additions made in all these appeals are accordingly ordered to be deleted. Ground of the revenue on the component of relief allowed by CIT(A) to the assessee since the entire addition on this score has been ordered to be deleted by us this ground of the revenue s appeals does not survive anymore and hence the same is rejected. This issue is accordingly directed in favour of the assessee. Enhancement u/s 251(1) regarding alleged understatement of investment in property - In view of the factual as well legal discussion made above on the identical issue of valuation of the property at village Dasora and in the light of various Judicial pronouncements as discussed above this issue is accordingly decided in favour of the assessee and against the revenue. The impugned additions are ordered to be deleted. The direction of the Ld. CIT(A) to reopen the assessment on account of difference in valuation the basis of DVO s report for AY. AY 2010-11 2012-13 is also set aside and quashed. Reopening of assessment - HELD THAT - Direction of the CIT(A) to reopen the assessment on account of difference in valuation the basis of DVO s report for AY. AY 2010-11 2012-13 is set aside/quashed. Shortage of stock found during search held as undisclosed sale - HELD THAT - In this case it is apparent from the pleadings made by both Ld. Representatives of the parties that the there were flaws in taking the valuation of the stock. The major flaw pointed out by the assessee which remained unrebutted by the department was that the search party failed to take into account the work in Progress stock in making the inventory of the stock. Counsel as pointed out serious errors in physical stock taking such as exclusion of certain storage locations and godowns counting errors and misclassification of items particularly pharmaceutical products of different compositions dosages and packaging sizes incorrect valuation rates applied failure to account for packaging materials chemicals and semi-processed goods. Even the assessee had submitted a detailed explanation along with supporting documents to the DDIT during post-search investigations proving that the physical inventory recorded by them was incorrect. However neither the search party nor both the lower authorities could rebut the same. The Ld. counsel in this respect has placed reliance upon the decision of President Industries 1999 (4) TMI 8 - GUJARAT HIGH COURT wherein it has been held that estimation-based methods should not replace actual recorded transactions unless books of accounts are rejected u/s 145(3) which was not done in this case. The said decision in our view is squarely applicable in this case. Further the allegation that the assessee did not maintain properly the stock register has been also proved wrong by the Ld. AR by referring to the year-wise stock records which included WIP details and these were also submitted before the lower authorities but the same have not been dealt with by any of the lower authorities. The Ld. DR has also failed to rebut the above facts. Moreover the stock was duly vouched by the Banks also with whom the same was hypothecated. Periodical stock audit reports were submitted by the assessee to the banks and stock was also physically verified by the external auditors appointed by banks at regular intervals and stock audit reports issued by them but no shortage ever pointed out by them. Even no incriminating material what so ever such as any unrecorded invoices or any cash receipts were found during the search action. Even the Ld. AO has not mentioned with whom the assessee entered into unaccounted transitions. The AO totally failed to bring on record as to who were the alleged buyers to whom the assessee allegedly made unaccounted sales what to say of any evidence in the shape of corresponding entries in other entities books to support the theory of unrecorded sale. Regarding the alternate contention of the Ld. AR that even otherwise the addition made on the alleged suppressed profits will be eligible for deduction u/s 80IC - It is to be noted that if the allegations are that the assessee had indulged in suppression of profits by making unaccounted sales and there is no allegation of any unaccounted purchases and the assessee s unit is eligible for 80IC deduction then obviously such profit determined by the AO will be business profit of the manufacturing unit and the same will be eligible for 80IC deduction as held in the case of Vishal Paper Industries 2012 (3) TMI 338 - ITAT CHANDIGARH wherein AO on the one hand has alleged that the assessee has booked bogus/excess purchases on the other hand made addition on account of supressed sales. This stand of the AO is contradictory to the allegation of bogus purchases. Estimation of Commission/profit @ rate of 1% of total alleged unaccounted sales and purchases - only case of the department is that the trading within the group companies has not actually happened or the same has happened without actual movement of goods within the group companies - HELD THAT - Considering that it is the case of the assessee as well as the department that the circular transactions were done through artificially inflate the turnover therefore the estimation of any commission income in this case cannot be held to be justified and the same is ordered to be deleted. However the assessee will not be entitled to claim 80IC deduction in respect of profits shown on these bogus sales made to group companies. However this finding of us will be appliable only for the assessment years in which the assessment for the relevant year stood abated and not completed. However in respect of appeals/cases in which the assessment stood completed and not abated on the date of search in view of our observations made above while deciding the first issue since no incriminating material was found during the course of search action no addition is sustainable in respect of those assessment years where the assessment stood completed and not abated on the date of search action as discussed above. With the above observations this issue is accordingly decided partly in favour of the assessee and partly in favour of the revenue. Denying deduction u/s 80IC on account of alleged GP on net sales purchase transaction - HELD THAT - Since the transactions were intra group/circular transactions. Since these purchase/sales were made within the group companies and in view of our discussion made above the aforesaid transactions were done to inflate the turnover of the company therefore the profits shown in such intra group sales/ purchases would not be eligible for deduction u/s 80IC of the Act. We find force in the contention of the Ld. Counsel that these transactions were both ways i.e. sales by SPEL to Maxport and vice versa. AO is directed to calculate the net profits/ expenditure taking into consideration all such transactions for the year under consideration. If both the captioned assessee s have shown any net profits in relation to such transactions the same will be added as income from other sources and will not be eligible for deduction under section 80IC Addition u/s 69C r.w.s 115BBE - assessee failed to provide evidence that the property was used by SEPL as its office - CIT(A) held that SEPL discharged the assessee s liability for the construction which constituted a benefit to the assessee without consideration classifying the payments as income from other sources. - HELD THAT - Assessee has not been able to substantiate the claim that the said properties were being used as office premises by the company. No lease agreement rent receipts or board resolutions were furnished. Therefore the conclusion of the lower authorities that SEPL had made gratuitous payments for construction of the aforesaid houses on behalf of the assessee in our view is correct and does not warrant any interference by us. The observation of the Ld. CIT(A) that the said benefit is to be added as Income from other sources instead of deemed dividend is also justified as the said payments are not in the nature of loans or advances rather the said payment has been made gratuitously without any consideration. However as discussed in earlier paras of this order the Govt. Valuer was supposed to adopt State PWD rates instead of CPWD rates and further that the CPWD rates are higher about 20% than the PWD rates in Chandigarh. Further the Regd. Valuer engaged by the assessee has estimated the value of the house No. 3100 sector 21 Chandigarh at Rs. 40 Lakhs hence it is directed that the value of the said house be taken at Rs. 40 Lakhs. The assessee and the SEPL have booked the total expenditure in respect of the said house in their books of account of Rs. 35, 57, 000. The difference i.e. 40 (-) 35.57 4.43 lakhs is considered as investment from undisclosed sources. The said amount be divided in the ratio of 1/3rd each and hence the addition u/s 69C is restricted to the extent of 1.47 Lakhs in the hands of each of the three owners of the said house. Remaining additions on account of gratuitous expenses incurred by the SEPL in respect of both the houses is hereby confirmed as income from other sources. Disallowance in respect of bad debts claimed - HELD THAT - When the genuineness of the claim is not doubted and the debts have also actually become bad in the year under consideration then denial deduction on the technical ground of not writing off the same in the books of accounts due to error or omission would further complicate the matter as in that event the assessment for the years in which the same was written off in the books would have to be reopened and that would disturb the already finalized assessments and that in our view would not be appropriate at this stage especially when the claim of the assessee is otherwise admissible for the year under consideration. We therefore direct the AO to allow the deduction of the bad debts in the year under consideration. This issue is accordingly decided in favour of the assessee. Addition u/s 69C - purchases from parties treated as bogus - HELD THAT - Assessee had furnished complete details including purchase invoices stock register entries transport documents and bank payment proofs. All purchases were properly accounted for and matched with sales thereby establishing their authenticity. The purchases in question were subject to TDS and GST wherever required and they were duly deposited with the government. Merely because only a small number of suppliers did not file response to the notices issued u/s 133(6) of the Act that in our view can be the sole basis to hold the purchases made from those parties as bogus. The AO could not point out any defect or infirmity in the reply and details furnished by the parties who affirmed the purchases. The assessee has huge turnover. It imports the material as well as export its products. The suppliers in question have not been listed as suspicious in any of the investigation report. No verification of the existence of the said suppliers was made by the AO. Even during the course of search no evidence of making unrecorded purchases and making payment in cash for the same was found. Addition made by the AO on the basis of mere suspicion without any corroborative material are not sustainable and the same are accordingly ordered to be deleted. Unexplained investment in jewellery found from bank lockers during the search - CBDT guidelines are not fixed yardstick for determining the value of jewellery which a person can possess in each and every case These are general guidelines for a person of reasonable income and status. However given the past average income of the assessee s their rank and status the aforesaid jewellery can not be said to be on higher side and hence can not be treated as acquired from undisclosed sources. The case laws cited by the Ld. Counsel for the assessee are squarely applicable to the facts and circumstances of the present case wherein it has been time and again held that Keeping status of assessee s family in mind as well as customs and practices of community to which family belonged the value of the jewellery which the family would reasonably and in the ordinary circumstance is to be taken. In view of the above discussion the addition made under Section 69A is unsustainable and the same is accordingly ordered to be deleted. Approval u/s 153D given being without application of mind and in a mechanical and casual manner the assessment orders thereof are thus not sustainable the same are hereby quashed.
ISSUES:
RULINGS / HOLDINGS:
RATIONALE:
|
