The Income Tax Appellate Tribunal ( ITAT ) Delhi Bench ruled in favor of the appellant by deleting the tax additions made under Section 153A of the Income Tax Act, 1961. The tribunal held that the income tax department failed to establish a direct connection between the seized documents and the assessee company, making the tax additions legally unsustainable.
Colourful Estates Pvt. Ltd.,appellant-assessee, is a real estate developer working on Golf View Project-II in Sector 78, Noida. On February 5, 2014, the Income Tax Department conducted a search and seizure operation at the premises of Antriksh Group and the residence of Rakesh Kumar Yadav, who was a director in both Colourful Estates Pvt. Ltd. and Antriksh Developers & Promoters Pvt. Ltd.
Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here
Complete Compliance is necessary under Direct Tax Vivad se Vishwas Scheme: Kerala HC
During the search, loose papers and diaries were recovered from Yadav’s residence. These documents contained various financial entries related to receipts and payments. The Assessing Officer ( AO ) initiated proceedings under Section 153A, claiming that these entries represented undisclosed income of Rs.6.14 crore (AY 2011-12) and Rs.3.43 crore (AY 2012-13) for Colourful Estates.
The Commissioner of Income Tax (Appeals) [CIT(A)] later provided partial relief by reducing the tax additions to Rs.1.05 crore for AY 2011-12 and Rs.2.40 crore for AY 2012-13. However, CIT(A) upheld the inclusion of these amounts as undisclosed income, leading Colourful Estates to file an appeal before the ITAT Delhi.
The ITAT reviewed the case and ruled in favor of Colourful Estates. It held that the seized documents did not directly refer to Colourful Estates Pvt. Ltd. Most of the financial entries were related to Golf View Project-I, which was developed by Antriksh Developers, a separate legal entity.
The tribunal noted that the seized papers were found at Yadav’s residence and not at Colourful Estates premises. Since Yadav was also a director in multiple companies, the ITAT ruled that these entries could not be automatically linked to Colourful Estates without concrete evidence.
The tribunal also reviewed statements recorded under Section 132(4) during the search and found that Yadav did not implicate Colourful Estates in any financial wrongdoing. It ruled that the mere possession of documents by a director does not prove that the company was involved in undisclosed income.
The tribunal further found that identical tax additions had been made in the assessment of Antriksh Developers for the same transactions. This resulted in double taxation, which the AO failed to justify.
Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here
In conclusion, Two Member Bench of Yogesh Kumar US ( Judicial Member ) and Pradip Kumar Kedia ( Accountant Member ) ruled in favor of Colourful Estates Pvt. Ltd. and deleted all tax additions. The tribunal found that the Income Tax Department failed to establish a clear link between the seized documents and the company. Since the documents were recovered from the residence of a third party (Rakesh Kumar Yadav) and not from the company’s premises, the tribunal held that the additions made under Section 153A were legally invalid.
The ITAT also noted that similar additions were made in the case of Antriksh Developers, leading to double taxation, which the tax authorities failed to justify. With this decision, Colourful Estates Pvt. Ltd. is no longer liable to pay tax on the disputed income, and the ruling reinforces that assessments under Section 153A must be based on direct incriminating evidence against the assessee.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
