2025 (7) TMI 1475 - AT - Income Tax

Assessments framed u/s 153C - incriminating material found from premises of an erstwhile partner - HELD THAT - The so-called incriminating document has been found from the premises of erstwhile partner of the assessee firm and not from the assessee or present partners. Shri Sumit Jindal accepted the papers and identified the names as mentioned in the said documents. The legal presumption u/s 292C would go against Shri Sumit Jindal only. Except for two entries as carried out through banking channels there was no material to indicate that other entries had also gone for the benefit of the assessee. The document does not prove that except for two amounts of Rs. 25 Lacs and Rs. 0.25 Lacs as credited in the bank of assessee-firm the other entries also pertained to the assessee-firm. Shri Sumit Jindal was not partner in the firm at the time of search and therefore any documents as recovered from his possession could not be automatically linked to the assessee-firm. No incriminating material was found during search on assessee. Accordingly the impugned addition has rightly been deleted even on merits. In the result the revenue s appeal stands dismissed. Addition u/s 69B - assessee reflected investment less than as against DVO estimation - assessee opposed the valuation on the ground the local PWD rates were to be applied as against CPWD rates - HELD THAT - As assessee s case was scrutinized on the basis of search action on the other group. As alleged that the assessee made higher investment in cash in construction of stated project. There is no concrete material as found during the course of search which has been referred to by AO in the assessment order to support the said allegation. The whole basis of impugned addition is DVO valuation which is always subjective valuation. There is no finding that the assessee actually made cash investment in the construction of the aforesaid property. Proceeding further it could be seen that for this year the assessee has made investment of Rs. 112.38 Lacs whereas Ld. DVO has arrived at valuation of Rs. 228.76 Lacs. The Ld. AO has concurred that benefit of self-supervision was to be allowed to the extent of 10% on the differential amount only. CIT(A) allowed the same on the gross valuation as made by DVO. AR has urged that the books of the assessee have not been rejected and therefore no such reference could have been made to DVO to make impugned addition in the hands of the assessee - Assessee is engaged in real estate and the said investment form part of assessee s books of accounts. The proposition as urged by Ld. AR has been laid down in the case of Sargam Cinema 2009 (10) TMI 569 - SC ORDER holding that AO could not refer any matter to DVO without rejecting assessee s books of accounts. This decision has subsequently been followed by jurisdictional High Court in various decisions viz. Chouhan Resorts 2014 (2) TMI 176 - PUNJAB AND HARYANA HIGH COURT Nirpal Singh 2013 (10) TMI 165 - PUNJAB HARYANA HIGH COURT Freedom Board Paper Mills 2015 (5) TMI 83 - PUNJAB HARYANA HIGH COURT Further in Rajesh Mahajan 2014 (11) TMI 949 - PUNJAB HARYANA HIGH COURT confirmed the finding of Tribunal that CPWD rates were 30% higher than the market value and 15% allowance was provided for self-supervision. The Ld. ARhas amply demonstrated that if the concession of self-supervision as well as concession for differential in CPWD rates and PWD rates is allowed to the extent of 15% and 25% respectively nothing would remain to be added as unexplained investment - we delete the impugned addition in toto. The assessee succeeds in its appeal.

Summary

ISSUES:

Whether the Assessing Officer had jurisdiction to frame assessment under Section 153C of the Income Tax Act in absence of recorded satisfaction notes by the AO of the searched person and the AO of the assessee.Whether incriminating material found from premises of an erstwhile partner can be attributed to the assessee-firm for making additions under Section 153C.Whether additions based on valuation by the DVO without rejection of the assessee's books of accounts are sustainable.Whether benefit of self-supervision and rebate for difference in CPWD and PWD rates should be allowed in valuation-based additions under Section 69B.Whether impugned additions for unexplained investment in construction can be sustained without concrete material found during search proceedings.

RULINGS / HOLDINGS:

The Assessing Officer's jurisdiction under Section 153C is contingent upon recording of "objective satisfaction" by the AO of the searched person as well as the AO of the assessee; absence of such satisfaction notes renders the assessment liable to be quashed.Documents found from the premises of an erstwhile partner cannot be automatically linked to the assessee-firm, and the "legal presumption u/s 292C would go against" the erstwhile partner only; hence, additions based solely on such documents are not sustainable.Reference to the DVO for valuation without rejection of the assessee's books of accounts is impermissible as per binding judicial precedents, and additions based on such valuation are liable to be deleted.The benefit of 10% for self-supervision is to be allowed on the gross valuation as made by the DVO, not merely on the differential amount; additionally, a rebate for difference between CPWD and PWD rates is to be allowed as per Supreme Court decisions.In absence of concrete incriminating material found during search and where valuation adjustments and concessions are applied, additions for unexplained investment are to be deleted.

RATIONALE:

The Court applied the statutory framework of Sections 153A to 153D of the Income Tax Act, emphasizing that Section 153C requires the AO of the searched person to record satisfaction that seized documents belong to another person before proceeding against that other person.Supreme Court precedents (e.g., DCIT vs. U.K. Paints (Overseas) Ltd., SSP Aviation Ltd.) were relied upon to clarify that jurisdiction under Section 153C is dependent on such recorded satisfaction and that mere possession of documents by an erstwhile partner does not suffice to link incriminating material to the assessee-firm.The Court referenced binding precedents including Sargam Cinema vs. CIT and subsequent High Court rulings that prohibit DVO valuation references without rejection of books of accounts, thereby protecting the assessee's right against arbitrary valuation additions.The Court followed the principle that valuation adjustments must consider "benefit of self-supervision" and differences in valuation rates (CPWD vs. PWD), as held in Supreme Court decisions such as Sunita Mansingha and Rajesh Mahajan.The Tribunal acknowledged that additions must be supported by "concrete material" found during search and that valuation alone, especially when adjusted for accepted concessions, cannot form the sole basis for additions.