Whether addition can be made on the basis of confidential information submitted before Settlement Commission without incriminating material found in search and seizure to support addition

ACIT v. Renu Sehgal (Smt.) (2019) 75 ITR 178 (Jaipur)(Tribunal)

SUB: Whether addition can be made on the basis of confidential information submitted before Settlement Commission without incriminating material found in search and seizure to support addition.

BRIEF FACTS

1. A search and seizure operations were conducted on various premises of the group to which the assessee belonged.

2. During the search operations, the AO seized various material, including an agreement to sell dated 10-10-2011.

3. The agreement provided that the assessee, along with her husband, agreed to sell properties for ` 56 crores and had received an advance of 8 crores.

4. The AO doubt the genuineness of the transactions and obtained a report from the Investigation Wing.

5. Based on the report, he held the transaction not to be genuine as the said company was found to indulge in providing accommodating bogus entities.

6. After the search and seizure, the assessee and her husband approached the settlement commission.

7. The assessee offered an amount of 35 lakhs for AY 2009-10 to 2015-16.

8. The settlement commission rejected the application as the additional amount declared was merely based on estimates.

9. The CIT(A) deleted the addition made by the AO but enhanced the addition considering the settlement commission application.

HON'BLE TRIBUNAL

10. There was cross-appeal by the revenue and assessee before the Tribunal.

i) On revenue appeal, the Tribunal held that that the transaction is not an afterthought as the agreement was found during the search operations, and the existence of the agreement cannot be doubted. The amounts were transferred from bank accounts. The Investigation Wing report does not dispute the existence of the company. The identity of the purchase is not in doubt, and the revenue authorities accept the assessment of the purchaser.

ii) The AO has not brought any material to show that the company does not have sufficient funds; on the contrary, the financial statements show sufficient net worth of the company. In the absence of the material, genuineness of the transaction cannot be doubted merely on suspicion.

iii) The mere reliance on the Investigation Wing report itself is not conclusive evidence unless incriminating material is produced.

iv) Once the assessee discharged the onus to prove the identity and creditworthiness of the creditor/purchaser and genuineness of the transaction, the burden is shifted on the AO to prove the contrary with some tangible material.

v) The AO should have conducted an independent inquiry.

vi) As per Section 51 of the IT Act,1961, once the amount forfeited, the same would be deducted from the cost for which asset was acquired or written down value or fair market value as the case may be in computing the cost of acquisition for capital gain.

vii) On assessee appeal, the Tribunal noted that the CIT(A) made the addition based on the application made u/s. 245C(1) before settlement commission. Further, it noted that the application was rejected for want of any conclusive proof or documents and was based on estimates.

viii) The confidential information submitted before the settlement commission cannot be a basis of addition in the assessment proceedings in the absence of any incriminating material found during search and seizure action.

ix) The application filed u/s 245C (1) was rejected, and cannot be a basis of addition to the income of the assessee.

CONCLUSION

From the above decision it is clear that confidential information submitted before Settlement Commission cannot be basis of addition in the assessment proceedings. The AO must have with him some incriminating materials in hand to substantiate addition made on the basis of information before the Settlement Commission during search and seizure process.

DISCLAIMER: The above case law is only for information and knowledge of readers. In case of necessity do consult with tax consultants.

Footnotes

SECTION 153C-ASSESSMENT OF INCOME OF ANY OTHER PERSON

(1) Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, where the Assessing Officer is satisfied that,-

(a) any money, bullion, jewellery or other valuable article or thing, seized or requisitioned, belongs to; or

(b) any books of account or documents, seized or requisitioned, pertains or pertain to, or any information contained therein, relates to,

a person other than the person referred to in section 153A, then, the books of account or documents or assets, seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall proceed against each such other person and issue notice and assess or reassess the income of the other person in accordance with the provisions of section 153A, if, that Assessing Officer is satisfied that the books of account or documents or assets seized or requisitioned have a bearing on the determination of the total income of such other person for six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition is made and for the relevant assessment year or years referred to in sub-section (1) of section 153A :

PROVIDED THAT in case of such other person, the reference to the date of initiation of the search under section 132 or making of requisition under section 132A in the second proviso to sub-section (1) of section 153A shall be construed as reference to the date of receiving the books of account or documents or assets seized or requisitioned by the Assessing Officer having jurisdiction over such other person :

PROVIDED FURTHER THAT the Central Government may by rules made by it and published in the Official Gazette, specify the class or classes of cases in respect of such other person, in which the Assessing Officer shall not be required to issue notice for assessing or reassessing the total income for six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition is made and for the relevant assessment year or years as referred to in sub-section (1) of section 153A except in cases where any assessment or reassessment has abated.

(2) Where books of account or documents or assets seized or requisitioned as referred to in sub-section (1) has or have been received by the Assessing Officer having jurisdiction over such other person after the due date for furnishing the return of income for the assessment year relevant to the previous year in which search is conducted under section 132 or requisition is made under section 132A and in respect of such assessment year-

(a) no return of income has been furnished by such other person and no notice under sub-section (1) of section 142 has been issued to him, or

(b) a return of income has been furnished by such other person but no notice under sub-section (2) of section 143 has been served and limitation of serving the notice under sub-section (2) of section 143 has expired, or

(c) assessment or reassessment, if any, has been made, before the date of receiving the books of account or documents or assets seized or requisitioned by the Assessing Officer having jurisdiction over such other person, such Assessing Officer shall issue the notice and assess or reassess total income of such other person of such assessment year in the manner provided in section 153A.

SECTION 245C. APPLICATION FOR SETTLEMENT OF CASES

(1) An assessee may, at any stage of a case relating to him, make an application in such form and in such manner as may be prescribed, and containing a full and true disclosure of his income which has not been disclosed before the Assessing Officer, the manner in which such income has been derived, the additional amount of income- tax payable on such income and such other particulars as may be prescribed, to the Settlement Commission to have the case settled and any such application shall be disposed of in the manner hereinafter provided:

Provided that no such application shall be made unless,-

(a) the assessee has furnished the return of income which he is or was required to furnish under any of the provisions of this Act; and
(b) the additional amount of income- tax payable on the income disclosed in the application exceeds one hundred thousand rupees.
(1A) For the purposes of sub- section (1) of this section and sub- sections (2A) to (2D) of section 245D, the additional amount of income- tax payable in respect of the income disclosed in an application made under sub- section (1) of this section shall be the amount calculated in accordance with the provisions of sub- sections (1B) to (1D).

(1B) 1 Where the income disclosed in the application relates to only one previous year,-

(i) if the applicant has not furnished a return in respect of the total income of that year (whether or not an assessment has been made in respect of the total income of that year), then, except in a case covered by clause (iii), tax shall be calculated on the income disclosed in the application as if such income were the total income;

(ii) if the applicant has furnished a return in respect of the total income of that year (whether or not an assessment has been made in pursuance of such return), tax shall be calculated on the aggregate of the total income returned and the income disclosed in the application as if such aggregate were the total income;

(iii) if the proceeding pending before the income- tax authority is in the nature of a proceeding for reassessment of the applicant under section 147 or by way of appeal or revision in connection with such reassessment, and the applicant has not furnished a return in respect of the total income of that year in the course of such proceeding for reassessment, tax shall be calculated on the aggregate of the total income as assessed in the earlier proceeding for assessment under section 143 or section 144 or section 147 and the income disclosed in the application as if such aggregate were the total income.

(1C) The additional amount of income- tax payable in respect of the income disclosed in the application relating to the previous year referred to in sub- section (1B) shall be,-

(a) in a case referred to in clause (i) of that sub- section, the amount of tax calculated under that clause;

(b) in a case referred to in clause (ii) of that sub- section, the amount of tax calculated under that clause as reduced by the amount of tax calculated on the total income returned for that year;

(c) in a case referred to in clause (iii) of that sub- section, the amount of tax calculated under that clause as reduced by the amount of tax calculated on the total income assessed in the earlier proceeding for assessment under section 143 or section 144 or section 147.

(1D) Where the income disclosed in the application relates to more than one previous year, the additional amount of income- tax payable in respect of the income disclosed for each of the years shall first be calculated in accordance with the provisions of sub- sections (1B) and (IC) and the aggregate of the amount so arrived at in respect of each of the years for which the application has been made under sub- section (1) shall be the additional amount of income- tax payable in respect of the income disclosed in the application.

(1E) Where any books of account, other documents, money, bullion, jewellery or other valuable article or thing belonging to an assessee are seized under section 132, the assessee shall not be entitled to make an application under sub- section (1) before the expiry of one hundred and twenty days from the date of the seizure.

(2) Every application made under sub- section (1) shall be accompanied by such fees as may be prescribed.

(3) An application made under sub- section (1) shall not be allowed to be withdrawn by the applicant.