2015 (11) TMI 1758 - AT - Income Tax

Assessment u/s 153A - addition in respect of share application money - proof of incriminating documents as found and seized during the course of search - abetted assessment - Held that - It is a settled legal position that once a search and seizure action has taken place u/s 132 of the Act or a requisition has been made u/s 132A, the provisions of section 153A trigged and Assessing Officer is bound to issue notice u/s 153A of the Act. Once notices are issued u/s 153A of the Act then assessee is legally obliged to file return of income for six years. The assessment and reassessment for six years shall be finalised by the Assessing Officer. It is also held by various Courts that once notice u/s 153A of the Act issued, then assessment for six years shall be at large both for Assessing Officer and assessee have no warrant of law. It has been also held that in the assessment years where assessments have been abated in terms of second proviso to section 153A then Assessing Officer acts under original jurisdiction and one assessment is made for total income including the addition made on the basis of seized material. But where there is no abatement of assessments and assessments were completed on the date of search then addition can be made only on the basis of incriminating documents or undisclosed assets, etc. In these cases there was no incriminating document found and seized. No assessment proceedings were abated in these assessees. Thus assessments for these assessment years were completed on the date of search. The assessments were completed u/s 143(3) of the Act read with section 153A/153C of the Act after the search. There was no abatement of any proceedings in these cases for these assessment years in terms of second proviso to section 153A of the Act. There is no seized material belonging to the assessee which was found and seized in relation to additions made. We allow the appeals on the ground of sec. 153A of the I.T. Act wherein we have already held that in absence of any incriminating documents found and seized during the course of search, the Assessing Officer is not justified in making the addition in non-abated assessment order while passing the order u/s 153A r.w.s. 143(3) of the Act. - Decided in favour of assessee

Issues Involved:
1. Addition of share application money in the absence of incriminating documents found during the search.
2. Justification of the addition of share application money/share capital.
3. Charging of interest under section 234B.

Detailed Analysis:

1. Addition of Share Application Money in the Absence of Incriminating Documents Found During the Search:

A search under section 132 was conducted on 21.11.2006, and the assessee was served with a notice under section 153A. The assessee filed nil returned income, and the depreciation remained unadjusted. The assessing officer added share application money and share capital to the income of the assessee based on the audited accounts, without any incriminating documents found during the search.

The Tribunal noted that the assessing officer did not make any independent inquiry and relied solely on the investigation reports, which were not provided to the assessee for comments. The Tribunal emphasized that no adverse inference could be drawn unless the other parties were allowed cross-examination. The Tribunal concluded that in the absence of any incriminating material found during the search, the addition made under section 153A was not justified.

The Tribunal relied on several legal precedents, including the decision of the Hon'ble Delhi High Court in the case of Kabul Chawla, which held that completed assessments could be interfered with under section 153A only on the basis of incriminating material unearthed during the search.

2. Justification of the Addition of Share Application Money/Share Capital:

The assessee provided various documents to prove the identity, capacity, and genuineness of the share applicants, including PAN details, bank statements, share application forms, and board resolutions. The Tribunal noted that the assessing officer did not disprove these documents and failed to make any independent inquiry.

The Tribunal referred to the decision of the Hon'ble Supreme Court in the case of Lovely Exports Pvt. Ltd., which held that if the share application money is received from alleged bogus shareholders whose names are given to the assessing officer, the department is free to proceed to reopen their individual assessments. The Tribunal also cited the decision of the Hon'ble MP High Court in the case of CIT vs. Peoples General Hospital Ltd., which emphasized that once the identity of the investor is established, the burden is not on the assessee to prove the creditworthiness of the investor.

The Tribunal concluded that the assessee had discharged its onus by proving the identity of the subscribers and that there was no justification for making the impugned addition. The Tribunal deleted the additions made under section 68 of the Income Tax Act for all the assessment years from 2001-02 to 2004-05.

3. Charging of Interest Under Section 234B:

The assessee contended that the charging of interest under section 234B was mandatory only when there was an amount of income returned. The Tribunal did not provide a separate detailed analysis on this issue, as the primary focus was on the addition of share application money and the justification thereof.

Conclusion:

The Tribunal allowed the appeals of the assessee on the grounds that the addition of share application money/share capital was not justified in the absence of incriminating documents found during the search. The Tribunal emphasized that the assessee had discharged its onus by proving the identity, capacity, and genuineness of the share applicants, and there was no justification for making the impugned addition. The Tribunal also noted that the assessing officer failed to make any independent inquiry and relied solely on the investigation reports, which were not provided to the assessee for comments.

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