2016 (9) TMI 1365 - AT - Income Tax

Assessments under section 153A - proof of incriminating material found during the course of search - transactions reflected in the Bank account of the assessee with HSBC, Geneva, Switzerland - Held that - There was no incriminating material found during the course of search in relation to the transactions reflected in the Bank account of the assessee with HSBC, Geneva, Switzerland and since the assessments for both the years under consideration had become final before the initiation of search, no additions on account of the said transactions or income arising therefrom were permissible in the assessments completed under section 153 of the Act. The additions as finally made to the total income of the assessee on account of transactions reflected in the Bank account of the assessee with HSBC, Geneva, Switzerland and income relating thereto for both the years under consideration are beyond the scope of section 153A as the assessments for the said years had become final prior to the date of search and there was no incriminating material found during the course of search to support and substantiate the said addition. The said additions made for both the years under consideration are, therefore, deleted allowing the relevant grounds of the assessee s appeals. Channelizing undisclosed money through Bank account - source of monies deposited in HSBC Bank Account was his undisclosed money - Held that - We find that this issue has become infructuous or academic as a result of the decision rendered by us on the preliminary issue raised in these appeals, holding that the additions made to the total income of the assessee on account of the income arising from the relevant transactions reflected in the HSBC Account are not sustainable in the absence of any incriminating material found during the course of search to support and substantiate the same. We, therefore, do not consider it necessary or expedient to adjudicate upon this issue on merit. Penalty imposed under section 271( 1)(c) also cancelled.

Summary

Issues Involved:
1. Validity of assessments under section 153A without incriminating material.
2. Ownership and source of funds in the HSBC, Geneva, Switzerland bank account.
3. Levy of penalty under section 271(1)(c).

Detailed Analysis:

1. Validity of Assessments under Section 153A without Incriminating Material:

The assessee challenged the validity of assessments made under section 153A, arguing that no incriminating material was found during the search. The CIT(A) upheld the assessments, stating that the search revealed cash and an undisclosed foreign bank account, which justified the initiation of proceedings under section 153A. The Tribunal, however, noted that the returns for the relevant years were processed under section 143(1) before the search, and no incriminating material was found during the search related to the HSBC account. Citing the Mumbai Special Bench decision in All Cargo Global Logistics Limited and the Division Bench decision in Pratibha Industries, the Tribunal concluded that additions under section 153A should be based on incriminating material found during the search. Since no such material was found, the additions were deemed beyond the scope of section 153A and were deleted.

2. Ownership and Source of Funds in the HSBC, Geneva, Switzerland Bank Account:

The assessee initially admitted ownership of the HSBC account but later retracted, claiming it was opened by Mr. Onn Sithawalla of MSM Enterprises PTE Limited for a proposed joint venture. The CIT(A) rejected this claim, finding the affidavits and statements provided by the assessee and Mr. Sithawalla to be self-contradictory and lacking credibility. The CIT(A) concluded that the account and funds were the assessee’s undisclosed income. However, the Tribunal did not delve into the merits of this issue, as it had already decided to delete the additions based on the preliminary issue of the absence of incriminating material.

3. Levy of Penalty under Section 271(1)(c):

The assessee appealed against the penalties imposed under section 271(1)(c) for concealment of income related to the HSBC account. Given that the Tribunal deleted the additions on the basis of the absence of incriminating material, the penalties had no basis and were consequently cancelled.

Conclusion:

The Tribunal allowed the appeals concerning the validity of assessments and the penalties, while the appeal regarding the ownership and source of funds in the HSBC account became academic and was not adjudicated on merits. The final decision was to delete the additions and cancel the penalties, providing relief to the assessee.