2015 (7) TMI 647 - AT - Income Tax

Validity of assessment completed under section 153A - search carried out under section 132(1) - addition on share capital and the share premium as well as the disallowance of the expenses - Held that - In the case of the assessee, the addition has been made in each of the assessment years on account of the share capital and the share premium as well as the disallowance of the expenses. During the course of the search taken place in the case of the assessee, we noted that no incriminating material was found in respect of the additions made by the Assessing Officer in each of the assessment years. The only material which was found was the Bank account which the assessee was having with the banker. The said Bank account was duly disclosed in the income-tax return filed by the assessee. The said Bank account can also not be regarded to be the incriminating material. Even the Assessing Officer has also not made any addition on the basis of said bank account in each of the assessment years. The banker has made the Pay Order in respect of the balance of the Bank account in favour of the Revenue as per the order of ADIT vide letter dated 11.02.2010, only that Pay Order was seized. It is not the case that the Bank account was not disclosed. Except the Bank account, no other assets, documents or material were brought to our knowledge by the ld. D.R., which has been found or seized by the Department, so that it could be regarded to be the incriminating material in respect of the share capital and the share premium as well as the disallowance of the expenses in respect of which the addition has been made in the assessment completed under section 153A. Since there was no incriminating material found in the course of the search and brought to our knowledge by the ld. D.R. in respect of the share capital and share premium, therefore, we are of the view that no addition on this account can be made in the case of the assessee in each of the assessment years. We also noted that recently Hon ble Bombay High Court has also approved the decision of the Special Bench, Mumbai in the case of All Cargo Global Logistics Limited vs.- DCIT, ITAT, Rajkot Bench reported in (2015 (5) TMI 656 - BOMBAY HIGH COURT.). - Decided in favour of assessee.

Issues Involved:
1. Validity of the assessment order under section 143(3)/153A.
2. Legality of action under section 132(1) and the seizure of bank accounts.
3. Additions of share capital and share premium.
4. Liability to pay tax and interest under sections 234B and 234D.
5. Principles of natural justice in the assessment process.

Detailed Analysis:

1. Validity of the Assessment Order under Section 143(3)/153A:
The Tribunal examined whether the assessment orders dated December 30, 2011, under section 143(3)/153A were valid. It was argued that the assessment orders were without jurisdiction and bad in law. The Tribunal noted that the assessments for the years in question were already completed before the search. The Tribunal referred to the provisions of section 153A, which mandates that the Assessing Officer can reassess the total income of six assessment years preceding the year of search. However, the Tribunal held that such reassessment should be based on incriminating material found during the search. Since no incriminating material was found in the search, the Tribunal concluded that the assessment orders were not valid.

2. Legality of Action under Section 132(1) and the Seizure of Bank Accounts:
The Tribunal addressed the legality of the search and seizure actions under section 132(1). It was contended that the search was conducted on the bank accounts, not on the premises of the assessee, which was against the law. The Tribunal examined the panchnama and found that the search warrant was issued in the name of the bank accounts. The Tribunal referred to the Supreme Court's decision in KCC Software Limited, which held that a bank account could not be the subject of a search warrant. Therefore, the Tribunal held that the search and seizure actions were not valid.

3. Additions of Share Capital and Share Premium:
The Tribunal examined the additions made by the Assessing Officer on account of share capital and share premium. The Tribunal noted that the assessee had provided all necessary details, including the names and addresses of the shareholders, their PANs, and the bank statements. The Assessing Officer had verified these details and found no discrepancies. The Tribunal referred to the Supreme Court's decision in Lovely Exports, which held that the burden of proving the genuineness of share capital lies with the assessee, and if the assessee discharges this burden, the onus shifts to the Revenue. Since the Revenue did not provide any evidence to contradict the assessee's claims, the Tribunal held that the additions were not justified.

4. Liability to Pay Tax and Interest under Sections 234B and 234D:
The Tribunal addressed the issue of liability to pay tax and interest under sections 234B and 234D. The Tribunal noted that charging of interest under these sections is mandatory. However, since the Tribunal had already held that the additions made by the Assessing Officer were not justified, the liability to pay tax and interest would need to be recalculated. The Tribunal directed the Assessing Officer to rework the amount of interest chargeable under these sections as per the law.

5. Principles of Natural Justice in the Assessment Process:
The Tribunal examined whether the principles of natural justice were violated in the assessment process. It was contended that the Assessing Officer had made the additions without providing copies of the statements relied upon or affording an opportunity for cross-examination. The Tribunal noted that the Assessing Officer had not provided any adverse evidence against the assessee and had not given the assessee an opportunity to rebut the findings. The Tribunal held that this was a violation of the principles of natural justice and that the additions were arbitrary and unreasonable.

Conclusion:
The Tribunal dismissed the appeals filed by the Revenue and partly allowed the Cross Objections filed by the assessee. The Tribunal held that the assessment orders under section 143(3)/153A were not valid, the search and seizure actions under section 132(1) were not legal, and the additions of share capital and share premium were not justified. The Tribunal directed the Assessing Officer to rework the amount of interest chargeable under sections 234B and 234D as per the law.

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