2015 (12) TMI 1795 - AT - Income Tax

Assessment u/s 153A - Addition u/s 68 - share application Money received - unsecured loan - HELD 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 AO 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 in relation to sale and repurchase of shares of Adroit India Ltd. No assessment proceedings were abated in these assessment years of 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 is no seized material belonging to the assessee which was found and seized in relation to additions made. In view of this fact there is no justification for action u/s 153C of the Act that too without recording satisfaction. In our considered view the Assessing Officer must have some material to prima facie satisfy himself to record the satisfaction prior to issue of notice u/s 153C . Addition u/s 68 - It is not a simple case of taxing of share application money under section u/s 68 as the assessee has tried to project. It is a case of unaccounted income brought back into the books of accounts of the assessee company in a systematic organized manner which can be evidenced from the pattern of cash deposits in the bank accounts of the companies discussed above in detail from whom share application money were received by the assessee. These companies have been used as mere conduit companies for routing of unaccounted money into the business in the grab of share application money. During the assessment proceeding in Asst.Year 2005-06 in the case of the companies from whom the assessee companies received share application money it was reveal that cash deposits were found in their bank accounts but source of cash deposited were not properly explained by the above companies. Hence the source of share application money as received by the assessee company can not be treated as properly explained. Share application money as received by the assessee in the year under consideration be added to the income of the assessee U/s 68 of the Income Tax Act. Chargeability of interest u/s 234B is mandatory therefore dismissed on merit. Disallowance of income u/s 40(ia) - AO disallowed fright payment on the ground that no TDS was deducted - The assessee has taken the ground that by virtue of Finance Act 2008 w.e.f. 1.4.2005 the said section was amended which says that if the amount so deducted is deposited by the assessee till due date of filing of return is allowable deduction prior to March in that case - HELD THAT - In this case TDS was deducted and payment was made prior to March hence assessee has paid the tax on time therefore he requested the Bench to allow this additional ground. It is the legal claim of the assessee therefore it may be allowed. We find that this claim is a legal claim of the assessee which is allowable claim therefore in the interest of justice and fair play we allow the ground of the assessee and restore this matter to the file of the Assessing Officer with direction to the Assessing Officer to decide the issue as per amended section as per law. Thus ground of appeal is allowed for statistical purposes.

Issues Involved:
1. Validity of additions u/s 68 regarding share application money.
2. Requirement of incriminating material for assessments u/s 153A.
3. Legality of notice issued u/s 153C.
4. Disallowance of expenses u/s 40(a)(ia) for non-deduction of TDS.
5. Charging of interest u/s 234B.

Detailed Analysis:

1. Validity of Additions u/s 68 Regarding Share Application Money:
The primary issue revolves around the addition of share application money received by the assessee under Section 68 of the Income Tax Act. The assessee contended that the identity, genuineness, and creditworthiness of the share applicants were proven through various documents such as confirmation letters, PAN cards, bank statements, and audited financials. The Assessing Officer (AO) argued that the share application money was unaccounted income brought back into the books through conduit companies, which were merely providing accommodation entries. The AO relied on the pattern of cash deposits and the modus operandi of these companies. The CIT(A) partly allowed the appeal, confirming the addition for some companies while deleting it for others.

2. Requirement of Incriminating Material for Assessments u/s 153A:
The assessee challenged the addition made in the search assessment order u/s 153A, arguing that no incriminating documents were found during the search. The Tribunal held that in cases where assessments are not abated, additions can only be made based on incriminating material found during the search. The Tribunal relied on the decision in the case of CIT vs. Kabul Chawla, which held that completed assessments can only be interfered with based on incriminating material unearthed during the search.

3. Legality of Notice Issued u/s 153C:
The Tribunal emphasized that the AO must record satisfaction before issuing a notice u/s 153C. The Tribunal referred to the decision in the case of CIT vs. Mechmen, which mandates that the AO must be satisfied that the seized items belong to a person other than the one referred to in Section 153A. The Tribunal found that no such satisfaction was recorded in this case, rendering the notice u/s 153C invalid.

4. Disallowance of Expenses u/s 40(a)(ia) for Non-Deduction of TDS:
The AO disallowed freight payments u/s 40(a)(ia) on the ground that no TDS was deducted. The assessee argued that as per the amended section applicable from 1.4.2005, if the TDS is deposited before the due date of filing the return, the expenditure should be allowed. The Tribunal restored this matter to the AO for verification and decision as per the amended section.

5. Charging of Interest u/s 234B:
The Tribunal upheld the chargeability of interest u/s 234B, stating that it is mandatory.

Conclusion:
The Tribunal dismissed the departmental appeal and allowed the assessee's appeal on the issue of share application money, holding that the assessee had discharged its onus of proving the identity and genuineness of the transactions. The Tribunal also held that no additions could be made in the absence of incriminating material in non-abated assessments. The notice issued u/s 153C was deemed invalid due to the lack of recorded satisfaction by the AO. The issue of disallowance u/s 40(a)(ia) was remanded to the AO for reconsideration as per the amended section. Interest u/s 234B was upheld as mandatory.

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