Facts of the Case

The assessee, Poonam Tyagi, filed her return of income declaring income of ₹22,57,860 for Assessment Year 2016-17. Subsequently, a search operation under Section 132 of the Income-tax Act, 1961 was conducted on 03.11.2016 at the premises of the VVIP Group of Companies and related persons.

During the search proceedings, the Assessing Officer initiated assessment proceedings under Section 153A read with Section 143(3) of the Income-tax Act.

The Assessing Officer made the following additions:

  1. Addition of ₹1,33,00,000 under Section 69C on account of alleged “on-money” paid for purchase of a flat, based on a loose sheet (Annexure-A Page 26) found during the search.
  2. Addition of ₹50,16,941 under Section 69A for alleged unexplained jewellery found during search operations.

The additions were confirmed by the Commissioner of Income Tax (Appeals).

Aggrieved by the appellate order, the assessee filed an appeal before the Income Tax Appellate Tribunal (ITAT), Delhi Bench.

 

Issues Involved

  1. Whether the assessment under Section 153A can be sustained when no incriminating material was found during search from the assessee.
  2. Whether addition based on a loose sheet found from a third party could be sustained against the assessee.
  3. Whether the addition under Section 69A for unexplained jewellery was justified considering customary possession of jewellery and CBDT instructions.

 

Petitioner’s Arguments (Assessee)

  • No incriminating document relating to alleged “on-money” payment was found from the possession of the assessee during the search.
  • The loose sheet relied upon by the Assessing Officer was found from the premises of another person, not from the assessee.
  • The document was never confronted to the assessee during the course of search proceedings.
  • In such circumstances, assessment under Section 153A was not legally sustainable.
  • If any document belonging to another person is found, proceedings should be initiated under Section 153C, not Section 153A.
  • The assessee also argued that jewellery found during search represented:
    • Family jewellery received through inheritance,
    • Gifts received on occasions such as marriage, childbirth, and anniversaries,
    • Jewellery falling within the permissible limits as per CBDT Instruction No. 1916 dated 11-04-1994.

The assessee relied upon judicial precedents including:

  • CIT vs Kabul Chawla (380 ITR 573, Delhi High Court)
  • Ashok Chaddha vs ITO (2011) 14 taxmann.com 57 (Delhi HC)
  • Vibhu Aggarwal vs DCIT (2018) 93 taxmann.com 275 (Delhi ITAT).

 

Respondent’s Arguments (Department)

  • The Assessing Officer had validly framed the assessment under Section 153A read with Section 143(3).
  • The addition was justified based on the seized document indicating “on-money” payment.
  • With regard to jewellery, the Assessing Officer had already granted relief as per CBDT Instruction No. 1916, allowing a reasonable quantity of jewellery for family members.

 

Court Findings / Tribunal Order

  • No incriminating material relating to the alleged undisclosed income was found from the possession of the assessee during the search.
  • The loose sheet relied upon by the Assessing Officer was found from another person, not from the assessee.
  • Where documents are found from a third party, the proper course is to proceed under Section 153C, not Section 153A.
  • Therefore, the assessment framed under Section 153A was not valid in law.

Relying on the principles laid down by the Delhi High Court in CIT vs Kabul Chawla, the Tribunal held that no addition can be made in absence of incriminating material found during search.

Accordingly:

  • The legal ground raised by the assessee was allowed.
  • The assessment framed under Section 153A was held to be invalid.
  • Consequently, the additions made by the Assessing Officer were liable to be set aside.

 

Important Clarification by ITAT

  1. Assessment under Section 153A requires incriminating material found during search from the assessee.
  2. Where documents are recovered from a third party, proceedings must be initiated under Section 153C.
  3. Additions based solely on uncorroborated loose sheets are not sustainable.
  4. Jewellery found during search must be examined considering family customs, social status, and CBDT Instruction No. 1916.

 

Sections Involved

  • Section 132 – Search and Seizure
  • Section 153A – Assessment in case of search
  • Section 153C – Assessment of income of any other person
  • Section 143(3) – Scrutiny assessment
  • Section 69C – Unexplained expenditure
  • Section 69A – Unexplained money / jewellery
  • Section 153D – Approval of assessment in search cases

Link to download the order -  https://itat.gov.in/public/files/upload/1735719188-YVPGZg-1-TO.pdf

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