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Facts
During search proceedings under Section 132 against Malabar Group, entries indicating undisclosed income (return on investment) received by the assessee were found. Consequently, the AO initiated assessment under Section 153C and added Rs. 12,90,000/- to the assessee's income, which the CIT(A) subsequently confirmed. The assessee challenged this on the grounds of lack of evidence and procedural irregularities regarding satisfaction recording.
Held
The Tribunal found that neither the AO nor the CIT(A) properly addressed the validity of the assessment under Section 153C, specifically concerning the recording of satisfaction by the AOs of both the searched person and the assessee, and the non-availability of seized material to the appellant. Thus, the matter is remanded back to the CIT(A) for fresh adjudication in accordance with law, providing the appellant a reasonable opportunity of hearing.
Key Issues
Whether the assessment under Section 153C was valid without proper recording of satisfaction by the AOs; and whether the addition could be made without providing seized material as evidence to the assessee.
Sections Cited
132, 153C, 139, 143(3)
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Income Tax Appellate Tribunal, COCHIN BENCH
Before: SHRI INTURI RAMA RAO, AM
O R D E R This appeal filed by the assessee is directed against order of the Commissioner of Income Tax (Appeals)-3, Kochi [CIT(A)], dated 10.12.2024 for assessment year (AY) 2015-16.
Brief facts of the case are that that appellant is an individual. The return of income for AY 2015-16 was filed on 18.07.2015 declaring income of Rs.29,75,820/-. Subsequently, during the course of search and seizure proceedings under the provisions of section 132 of the Income Tax Act, 1961 (the Act) in the case of Malabar Group of concerns, the AO of the said group recorded satisfaction Siyad Edathil Abdulla that the assessee received undisclosed income from the said Malabar group of companies in the form of return on investment based on the entries found in the second set of books of account maintained by one Mr. Prajeesh in his hard disk and one Mr. Sameer in his pen drive. Accordingly, based on this information contained in the seized material found in the case of Malabar group of companies, the AO issued a notice u/s. 153C of the Act on 22.07.2021. The appellant also filed return of income in response to the notice issued u/s. 153C disclosing the same income as shown in the original return of income filed u/s. 139 of the Act.
Against the said return of income, the assessment was completed by the ACIT, Central Circle-2, Kozhikode (hereinafter called "the AO") vide order dated 09.03.2022 passed u/s. 153C of the Act at a total income of Rs. 42,65,820/-. While doing so, the AO brought to tax a sum of Rs. 12,90,000/- by holding that the appellant had not shown the income received from Malabar group of concerns.
Being aggrieved, an appeal was filed before the CIT(A) contending that there was no evidence to show that the appellant had received income of Rs12,90,000/- on investment made with Malabar Group. It is further contended that the appellant has been offering the income on receipt basis and no income can be taxed based on the entries found in the books of third party. It is further contended that in the absence of any conclusive evidence brought on record by the Department, no addition can be made based merely on the entries
Being aggrieved, the appellant is in appeal before the Tribunal in the present appeal.
It is contended that the CIT(A), without adverting to the grounds of appeal filed by the assessee and the statement of facts, had merely dismissed the appeal and, therefore, the matter may be remanded to the file of the CIT(A).
On the other hand, the CIT-DR did not raise any serious objection.
I heard the rival contentions of both the parties and perused the material available on record. From the ground of appeal filed before the CIT(A), it is clear that the appellant laid serious challenge on the very validity of the assessment made u/s. 143(3) r.w.s. 153C of the Act by alleging that without recording satisfaction by the AO of the searched person, and as well as the AO of the appellant, a notice u/s. 153C of the Act was issued. From para 5 of the order of the CIT(A) it is clear that the CIT(A) merely returns finding by observing as under: -
5. The grounds/contentions raised by the appellant at various stages of the appellate proceedings have been carefully considered. One of the contentions of the appellant is that the assessment made was not supported by any evidence. As it can be seen from the assessment order, during the course of the Siyad Edathil Abdulla search on MGC of which the appellant is a shareholder, evidence regarding undisclosed dividend/interest payment were found and seized. The particulars of the evidence seized during the course of search is also mentioned in the body of the assessment order. Therefore, this argument of the appellant is also not acceptable.
5.1 The appellant has raised another argument that the purported amount has never been received by him and therefore, the AO has made the assessment without adequate evidence. In this regard, it needs to be stated that the appellant himself is a shareholder of MGC. The evidence seized from the premises of MGC conclusively proved that MGC has made undisclosed dividend/interest payments to the appellant. That being the case, the appellant cannot feign ignorance about such receipts. Further, the argument that the appellant has not acknowledged receipt of such undisclosed payments would only be self-serving argument as it cannot be expected that receipts will be issued for such undisclosed payments. Considering the above facts, the above argument of the appellant is not acceptable. Similarly, the argument of the appellant regarding non deduction of TDS for undisclosed interest payments would also fail since the payment itself is not reflected in the books of accounts of MGC. Considering the above facts, the above argument of the appellant is rejected.
5.2 The appellant has further argued that the AO is relying on certain seized documents from the Malabar Group of Companies and none of the alleged documents are indicating any amount is paid in excess, with any supporting documents. With regard to the above, it needs to be stated that the entire set of payments are done outside the books of accounts and hence logic would not support the existence of proper documentation for such payments. MGC at no point of time has questioned the genuineness/validity of the material seized from its premises. That being the case, the appellant who himself is a shareholder of MGC cannot take a stand that the payments, Siyad Edathil Abdulla as reflected in the seized material was ever made. Without prejudice to the above, it also needs to be noted that there are a number of shareholders of MGC who subsequent to the search conducted at MGC have admitted such undisclosed interest/dividend payment made by MGC as income in their respective individual Income Tax Returns and paid applicable taxes. That being the case, the argument raised by the appellant in this regard lacks credibility and hence not sustainable. 5.3 Another argument raised by the appellant vide submission dated 04/12/2024 is that the AO has made the addition on the assumption that the appellant has received interest income in excess of what has been disclosed by him in the return of income. The appellant has worked out a figure lesser than the amount of addition made by the AO and has claimed that the amount so worked out by him should have been considered for addition instead of the actual addition made by the AO. The contention of the appellant has been considered. It is observed that during the course of assessment proceedings, the AO had made available copies of the seized material to the appellant for his comments/objections. The numerous opportunities so provided by the AO during the course of assessment proceedings were not utilised by the appellant for explaining his point. Under such circumstances, the contention now taken by the appellant at the concluding stages of the appellate proceedings, alleging excessive addition cannot be sustained and hence rejected.”
However, the CIT(A), without referring to the satisfaction note recorded by the AOs of both the searched party as well as the appellant, merely recorded this finding. It must be made clear that the assessment order also is totally silent with regard to recording of satisfaction by the AO as well as the AO of the searched person. Furthermore, what evidence was gathered during the course of Siyad Edathil Abdulla search and seizure proceedings in the case of Malabar group of concerns indicate payment of interest on investment made by the appellant, was not made available to the appellant. From reading of the assessment order, it is not clear whether the name of the appellant figured in the seized material. Thus, the CIT(A) also, without adverting to the seized material and discussing the evidence gathered by the AO, merely confirmed the addition. In these circumstances, I am of the considered opinion that the matter requires remand to the file of the CIT(A) for fresh adjudication in accordance with law after affording reasonable opportunity of hearing to the appellant reasonable opportunity of hearing to the appellant. I make it clear that all the contentions made by the assessee are kept open before the CIT(A).
In the result, the appeal filed by the assessees stands allowed for statistical purposes.
Order pronounced in the open court on 30th April, 2025.