2016 (3) TMI 1125 - AT - Income Tax

Assessment u/s 153A - Addition of interest - Held that - We have already discussed the scope of assessment u/s 153A in the case of Kabul Chawla 2015 (9) TMI 80 - DELHI HIGH COURT and RRJ Securities Pvt.Ltd. (2015 (11) TMI 19 - DELHI HIGH COURT) have arrived at the conclusion that completed assessment can be interfered with by the Assessing Officer while making the assessment u/s 153A only on the basis of some incriminating material unearthed during the course of search or requisition of document. Admittedly, no incriminating material relating to interest expenditure was unearthed during the course of search or requisition of documents and, therefore, in our opinion, the disallowance of interest was out of the purview of the assessment u/s 153A. In the absence of incriminating material, the Assessing Officer should reiterate the completed assessment

Issues Involved:
1. Deletion of addition on account of bogus share application money.
2. Validity of proceedings initiated under Section 153A.
3. Disallowance of interest on borrowed funds.
4. Incriminating material found during search.
5. Scope of assessment under Section 153A.

Detailed Analysis:

1. Deletion of Addition on Account of Bogus Share Application Money:
The Revenue's appeal contended that the CIT(A) erred in deleting the addition made by the Assessing Officer (AO) of ?7,52,00,000/- on account of bogus share application money. The AO argued that documents found during the search indicated the introduction of share application money from entities providing accommodation entries. However, the Tribunal found that no incriminating material was found during the search or post-search enquiries that could substantiate the addition under Section 153A. The Tribunal relied on the decisions of the Hon'ble Delhi High Court in the cases of Kabul Chawla and RRJ Securities Ltd., which established that completed assessments can only be interfered with based on incriminating material found during the search. Therefore, the Tribunal upheld the CIT(A)'s order deleting the addition.

2. Validity of Proceedings Initiated Under Section 153A:
The assessee argued that the proceedings initiated under Section 153A were invalid as they violated statutory conditions and procedures. The Tribunal examined whether any incriminating material was found during the search that could justify the reassessment under Section 153A. It concluded that no such material was found, and thus, the reassessment was not justified. The Tribunal reiterated that in the absence of incriminating material, the completed assessment could not be interfered with, following the legal position established by the Delhi High Court in Kabul Chawla and RRJ Securities Ltd.

3. Disallowance of Interest on Borrowed Funds:
The assessee appealed against the disallowance of ?60,00,000/- made by the AO on account of interest on borrowed funds. The Tribunal noted that no incriminating material related to interest expenditure was found during the search. Following the principles laid down by the Delhi High Court, the Tribunal held that the disallowance of interest was beyond the scope of reassessment under Section 153A in the absence of incriminating material. Therefore, it deleted the disallowance of ?60,00,000/-.

4. Incriminating Material Found During Search:
The Tribunal scrutinized whether any incriminating material was found during the search that could justify the additions made by the AO. It found that the documents referred to by the AO, such as group summaries of share application money, were already disclosed by the assessee during the original assessment proceedings. There was no new incriminating material found during the search or post-search enquiries that could substantiate the additions. The Tribunal emphasized that the assessment under Section 153A should be based on seized material, as held in Kabul Chawla and RRJ Securities Ltd.

5. Scope of Assessment Under Section 153A:
The Tribunal extensively discussed the scope of assessment under Section 153A, particularly when the original assessment was completed. It reiterated the legal position that completed assessments can only be interfered with based on incriminating material found during the search. The Tribunal concluded that in the absence of such material, the AO's additions were beyond the scope of reassessment under Section 153A. This principle was applied consistently across all the assessment years under consideration.

Conclusion:
The Tribunal dismissed the Revenue's appeals for all the assessment years and allowed the assessee's appeal for AY 2004-05. It upheld the CIT(A)'s orders deleting the additions on account of share application money and disallowance of interest, emphasizing the absence of incriminating material found during the search. The Tribunal's decisions were firmly grounded in the legal principles established by the Delhi High Court in Kabul Chawla and RRJ Securities Ltd., which restrict the scope of reassessment under Section 153A to cases involving incriminating material found during the search.

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