THE issues before the Bench are - Whether assessment can be made u/s 153A even when no incriminating material or evidence was found or seized at the time of search and there is no reference to the same in the AO’s order; Whether merely because the payment for investment in property was made through the bank account, it can be presumed that the source is explained and verified and hence no addition on account of unexplained investment can be made and Whether in case of search in the absence of any incriminating material found during search, no addition can be made on the basis of Report of the DVO.
Assessee is a Civil Contractor having proprietary concern viz. M/s B.S. Tubewells. A search and seizure operation u/s 132 was carried out, consequent to which search assessment u/s 153A was completed. The AO estimated the net profit @10% of the gross receipt as against declared net profit rate of 8.03% by making the following observations:- i) Contract-wise books of accounts were not maintained; ii) In the case of Assessee’s husband Sh. Vijay Kumar Kataria having identical activities, profit was declared at 24%; and iii) Even the assessee has declared 10% in some of the years.
CIT(A) observed that assessee has been in the business from a number of years and the system of accounting has been the same as in the preceding years. That it was not understood on what basis the AO had estimated the net profit at 10% of the gross profit. It was submitted that the assessee was executing small jobs of Rs. 15-20 lacs. It was further submitted that the observation by the AO regarding rate of 24% in the case of Vijay Kataria and 10% in the case of assessee was factually incorrect. It was further contended that in case of no books, profit u/s 44AD was to be computed at 8%. In the present case, regular books of accounts were maintained and AO had not found any mistake or irregularity. It was further submitted that it was not the case of the AO that any incriminating material had been found during the course of search or there were any defect or deficiency in the books of accounts and as such no addition could be made on the basis of general observation. Considering the above, CIT(A) deleted the addition made by the AO. He held that there was no case of estimation of trading.
Unexplained investment - AO made another addition on account unexplained investment in property. On this issue assessee was asked to furnish the details of immovable property purchased / sold in A.Y. 2003-04 and to explain the source of investment so made, which was duly furnished. Assessee submitted that the said purchase was made out of the sale proceeds from the sale of the property in Sarvodaya Enclave, New Delhi. The Assessee furnished the copy of the sale deed of the property which showed that the property at C-181, Sarvodaya Enclave, New Delhi was sold for Rs. 20,00,000/-. Whereas the investment made by the assessee in property No. B-50, Soami Nagar, New Delhi was Rs. 37,29,000/- (Including Rs. 4.59 lacs as tax and duty). Hence, the AO noted that the balance amount of investment of Rs. 17,29,000/- was unexplained by assessee with any kind of documentary evidence. Accordingly, he made an addition of Rs. 17,29,000/-. CIT(A) held that he has gone through the relevant bank statement and from which it was self evident that entire investment of Rs. 33 lacs is fully supported and verifiable. He held that once it is found that the payment was made through bank account and there is no dispute between various debit and credit entries in the bank account, there is no case of any addition. He held that the AO has made only general observation and totally disregarded the bank statement which was placed on record. Hence, CIT(A) deleted the addition.
Reference u/s 142A to the DVO - Reference u/s 142A to the DVO was made for determination of fair market price of the property. As per the Valuation Officer’s Report, the valuation of the impugned property was determined at Rs. 63,74,700/- as against Rs.33,00,000/- shown by the assessee. Thus, there was a difference of Rs. 30,74,700/-. This was added to the income of the assessee. However, CIT(A) deleted the addition as there was no evidence of adverse material regarding payment of under hand consideration.
On appeal by the Revenue, held that,
++ Search Assessment u/s 153A - AO in this case has estimated the trading results of the assessee @10% of gross profits as against 8.03% reflected by the assessee. The Assessee in this case is executing small contracts. The contracts are of same nature and regular books are maintained. No specific defect has been pointed out in the books maintained. It is further noted that on similar facts, AO has not made any addition in the assessment order passed u/s 153A for A.Y. 2001-02; 2004-05; 2005-06 & 2006-07. As such there is a clear contradiction in the approach of the AO. Furthermore, reference to net profit in the case of Vijay Kumar Kataria and assessee in the past is factually incorrect;
++ this is a case of search and assessment order was passed u/s 153A of the I.T. Act. It is noted that no incriminating material or evidence was found or seized at the time of search and there is no reference to the same in the AO’s order. The ITAT in the case of All Cargo Global Logistics Ltd. vs. DCIT (2012-TIOL-391-ITAT-MUM-SB), with reference to the assessment u/s 153A, it was held that any assessment that are abated, the AO retains the original jurisdiction as well as jurisdiction conferred on him u/s 153A for which assessment shall be made for each assessment year separately. In other cases in addition to the income that have already been assessed, the assessment u/s 153A will be made on the basis of incriminating material which in the context of relevant provisions means (i) books of accounts, other documents found in the course of search, but not produced in the course of original assessment & (ii) undisclosed income or property discovered during the course of search. In the background of the aforesaid discussions and precedents, there is no infirmity in the order of the CIT(A);
++ Unexplained investment – there is no finding by the CIT(A) as to what was the source of investment of Rs. 17,29,000/-. Merely because the payment was made through the bank account, it could be presumed that the source is explained and verified. Further the investment in this case as reflected in the assessee’s statement of account needs to be corroborated from the books of accounts and records maintained by the assessee. As the books of accounts and records do not corroborate the investments, the addition has been made in this case. Hence, assessee’s contention that no addition can be made in the absence of any incriminating material found is not germane here. Hence, in the interest of justice, this issue was remitted to the file of the AO. The AO shall consider the issue afresh, in light of the submissions made by the assessee;
++ Reference u/s 142A to the DVO - Addition in this case has been made pursuant to search on the basis of Valuation Report of the DVO. It has been settled that in case of search in the absence of any incriminating material found during search, no addition can be made on the basis of Report of the DVO;
++ From the judicial pronouncements, it is evident that in the absence of any evidence that the assessee has invested more than value declared in the registered sale deed of property purchased, the addition in this regard on the basis of Valuation Report by the DVO is not sustainable;
++ Furthermore, we find that in this case the assessment was made u/s 153A of the I.T. Act. Hence, assessment u/s 153A can be made only on the basis of incriminating material found during the course of search;
++ Hence, in the background of the aforesaid discussions and precedents, there is no infirmity in the order of the CIT(A) on this issue. Accordingly, the same was affirmed.
Facts of the case
Assessee is a Civil Contractor having proprietary concern viz. M/s B.S. Tubewells. A search and seizure operation u/s 132 was carried out, consequent to which search assessment u/s 153A was completed. The AO estimated the net profit @10% of the gross receipt as against declared net profit rate of 8.03% by making the following observations:- i) Contract-wise books of accounts were not maintained; ii) In the case of Assessee’s husband Sh. Vijay Kumar Kataria having identical activities, profit was declared at 24%; and iii) Even the assessee has declared 10% in some of the years.
CIT(A) observed that assessee has been in the business from a number of years and the system of accounting has been the same as in the preceding years. That it was not understood on what basis the AO had estimated the net profit at 10% of the gross profit. It was submitted that the assessee was executing small jobs of Rs. 15-20 lacs. It was further submitted that the observation by the AO regarding rate of 24% in the case of Vijay Kataria and 10% in the case of assessee was factually incorrect. It was further contended that in case of no books, profit u/s 44AD was to be computed at 8%. In the present case, regular books of accounts were maintained and AO had not found any mistake or irregularity. It was further submitted that it was not the case of the AO that any incriminating material had been found during the course of search or there were any defect or deficiency in the books of accounts and as such no addition could be made on the basis of general observation. Considering the above, CIT(A) deleted the addition made by the AO. He held that there was no case of estimation of trading.
Unexplained investment - AO made another addition on account unexplained investment in property. On this issue assessee was asked to furnish the details of immovable property purchased / sold in A.Y. 2003-04 and to explain the source of investment so made, which was duly furnished. Assessee submitted that the said purchase was made out of the sale proceeds from the sale of the property in Sarvodaya Enclave, New Delhi. The Assessee furnished the copy of the sale deed of the property which showed that the property at C-181, Sarvodaya Enclave, New Delhi was sold for Rs. 20,00,000/-. Whereas the investment made by the assessee in property No. B-50, Soami Nagar, New Delhi was Rs. 37,29,000/- (Including Rs. 4.59 lacs as tax and duty). Hence, the AO noted that the balance amount of investment of Rs. 17,29,000/- was unexplained by assessee with any kind of documentary evidence. Accordingly, he made an addition of Rs. 17,29,000/-. CIT(A) held that he has gone through the relevant bank statement and from which it was self evident that entire investment of Rs. 33 lacs is fully supported and verifiable. He held that once it is found that the payment was made through bank account and there is no dispute between various debit and credit entries in the bank account, there is no case of any addition. He held that the AO has made only general observation and totally disregarded the bank statement which was placed on record. Hence, CIT(A) deleted the addition.
Reference u/s 142A to the DVO - Reference u/s 142A to the DVO was made for determination of fair market price of the property. As per the Valuation Officer’s Report, the valuation of the impugned property was determined at Rs. 63,74,700/- as against Rs.33,00,000/- shown by the assessee. Thus, there was a difference of Rs. 30,74,700/-. This was added to the income of the assessee. However, CIT(A) deleted the addition as there was no evidence of adverse material regarding payment of under hand consideration.
On appeal by the Revenue, held that,
++ Search Assessment u/s 153A - AO in this case has estimated the trading results of the assessee @10% of gross profits as against 8.03% reflected by the assessee. The Assessee in this case is executing small contracts. The contracts are of same nature and regular books are maintained. No specific defect has been pointed out in the books maintained. It is further noted that on similar facts, AO has not made any addition in the assessment order passed u/s 153A for A.Y. 2001-02; 2004-05; 2005-06 & 2006-07. As such there is a clear contradiction in the approach of the AO. Furthermore, reference to net profit in the case of Vijay Kumar Kataria and assessee in the past is factually incorrect;
++ this is a case of search and assessment order was passed u/s 153A of the I.T. Act. It is noted that no incriminating material or evidence was found or seized at the time of search and there is no reference to the same in the AO’s order. The ITAT in the case of All Cargo Global Logistics Ltd. vs. DCIT (2012-TIOL-391-ITAT-MUM-SB), with reference to the assessment u/s 153A, it was held that any assessment that are abated, the AO retains the original jurisdiction as well as jurisdiction conferred on him u/s 153A for which assessment shall be made for each assessment year separately. In other cases in addition to the income that have already been assessed, the assessment u/s 153A will be made on the basis of incriminating material which in the context of relevant provisions means (i) books of accounts, other documents found in the course of search, but not produced in the course of original assessment & (ii) undisclosed income or property discovered during the course of search. In the background of the aforesaid discussions and precedents, there is no infirmity in the order of the CIT(A);
++ Unexplained investment – there is no finding by the CIT(A) as to what was the source of investment of Rs. 17,29,000/-. Merely because the payment was made through the bank account, it could be presumed that the source is explained and verified. Further the investment in this case as reflected in the assessee’s statement of account needs to be corroborated from the books of accounts and records maintained by the assessee. As the books of accounts and records do not corroborate the investments, the addition has been made in this case. Hence, assessee’s contention that no addition can be made in the absence of any incriminating material found is not germane here. Hence, in the interest of justice, this issue was remitted to the file of the AO. The AO shall consider the issue afresh, in light of the submissions made by the assessee;
++ Reference u/s 142A to the DVO - Addition in this case has been made pursuant to search on the basis of Valuation Report of the DVO. It has been settled that in case of search in the absence of any incriminating material found during search, no addition can be made on the basis of Report of the DVO;
++ From the judicial pronouncements, it is evident that in the absence of any evidence that the assessee has invested more than value declared in the registered sale deed of property purchased, the addition in this regard on the basis of Valuation Report by the DVO is not sustainable;
++ Furthermore, we find that in this case the assessment was made u/s 153A of the I.T. Act. Hence, assessment u/s 153A can be made only on the basis of incriminating material found during the course of search;
++ Hence, in the background of the aforesaid discussions and precedents, there is no infirmity in the order of the CIT(A) on this issue. Accordingly, the same was affirmed.
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