2019 (11) TMI 1389 - AT - Income Tax

Assessment u/s 153A - Whether statement recorded u/s 132 of Shri Pravin Kumar Aggarwal and Ram Pal Soni during the course of search which were later on retracted by the respective persons can be considered as incriminating material for the purpose of framing u/s 153A - HELD THAT - As decided in CONTINENTAL WAREHOUSING CORPORATION (NHAVA SHEVA) LTD. ALL CARGO GLOBAL LOGISTICS LTD. 2015 (5) TMI 656 - BOMBAY HIGH COURT on a plain reading of section 153 of the Act it becomes clear that on initiation of the proceedings u/s. 153A of the Act it is only the assessment/reassessment proceedings that are pending on the date of search u/s. 132 of the Act stand abated and not the assessments/reassessments already final for those assessment years which are covered u/s. 153A - Hon ble High Court discussed the CBDT Circular No. 8 of 2003 dated 18.09.2003 wherein CBDT has clarified that on initiation of proceedings u/s. 153A of the Act the proceedings pending in appeal revision or rectification proceedings against final assessment shall not abate. It is only because the final assessments do not abate the appeal revision or rectification pending against final assessments would not abate. Therefore Hon ble High Court rejected the arguments of the Revenue that on initiation of proceedings u/s. 153A of the Act the reassessment final for assessment years covered u/s. 153A of the Act stands abated. Only the pending assessments get revived u/s. 153A of the Act. Hon ble High Court further held that once assessment has attained finality then the AO while passing independent assessment order u/s. 153A/143(3) of the Act could not disturb the assessment order which has attained finality unless the material gathered in the course of search u/s. 132/153A of the Act established that the finality attained in the assessment were contrary to the facts unearthed during the course of search. If any books of account or other documents relevant to the assessment had not been produced in the course of original assessment and found in the course of search in our humble opinion such books of account or other documents have to be taken into account while making assessment or reassessment of total income under the aforesaid provision. Similar position will obtain in a case where undisclosed income or undisclosed property has been found as a consequence of search. In so far as pending assessments are concerned the jurisdiction to make original assessment and assessment u/s 153A merge into one and only one assessment for each assessment year shall be made separately on the basis of the findings of the search and any other material existing or brought on the record of the AO and in respect of non-abated assessments the assessment will be made on the basis of books of account or other documents not produced in the course of original assessment but found in the course of search and undisclosed income or undisclosed property discovered in the course of search. Accordingly in view of the given facts and circumstances we are of the view that this issue is squarely covered in favour of assessee and against the Revenue and hence we allow this jurisdictional issue in favour of assessee and reverse the order of CIT(A) on this issue. Accordingly assessment framed under section 153A of the Act is quashed. - Decided in favour of assessee

Issues Involved:
1. Validity of assessment orders under section 143(3) read with section 153A of the Income-tax Act, 1961.
2. Consideration of incriminating material found during search operations.
3. Admissibility and impact of statements recorded during search operations.
4. Scope of assessment under section 153A for non-abated assessments.

Detailed Analysis:

1. Validity of Assessment Orders under Section 143(3) read with Section 153A:
The primary issue in these appeals is the validity of the assessment orders framed under section 143(3) read with section 153A of the Income-tax Act, 1961. The appellant contended that the assessments were bad-in-law as they were not based on any incriminating material found during the search. The Tribunal noted that the assessments for AYs 2009-10 and 2010-11 were completed and non-abated at the time of the search. Therefore, any reassessment under section 153A should be based on incriminating material found during the search.

2. Consideration of Incriminating Material Found During Search Operations:
The CIT(A) confirmed the AO's action, stating that incriminating material was found during the search, including share certificates and statements from key individuals admitting to bogus share application money. However, the Tribunal observed that the share certificates were not seized during the search but were submitted by the assessee for verification. The Tribunal relied on precedents, including the case of Agson Global Pvt. Ltd. Vs. ACIT, where it was held that mere possession of share certificates and blank documents cannot be considered incriminating material.

3. Admissibility and Impact of Statements Recorded During Search Operations:
The Tribunal discussed the evidentiary value of statements recorded during search operations. The CIT(A) had relied on statements from key individuals admitting to the introduction of unaccounted funds. However, the Tribunal referred to the decision in DCIT vs. Smt. Shivali Mahajan & Ors., where it was held that statements recorded during search operations, without corroborating material evidence, cannot be the sole basis for assessment under section 153A. The Tribunal emphasized that such statements, especially when retracted, do not constitute sufficient incriminating material.

4. Scope of Assessment under Section 153A for Non-Abated Assessments:
The Tribunal noted that the assessment for AY 2009-10 was non-abated at the time of the search. It referred to the Bombay High Court's decision in CIT vs. Continental Warehousing Corporation (Nhava Sheva) Ltd., which clarified that completed assessments can only be disturbed based on incriminating material found during the search. The Tribunal concluded that, in the absence of such material, the AO could not disturb the completed assessment.

Conclusion:
The Tribunal allowed the appeals of the assessee, quashing the assessments framed under section 153A for both AYs 2009-10 and 2010-11. It held that the assessments were not based on any incriminating material found during the search and that the statements recorded during the search, without corroborating evidence, could not justify the reassessment. Consequently, the issues raised in the Revenue's appeals were rendered academic and were not adjudicated. The Tribunal's decision underscores the importance of incriminating material in reassessments under section 153A and the limited scope of such reassessments for non-abated assessments.

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