2018 (9) TMI 2003 - AT - Income Tax

Assumption of jurisdiction u/s 153A - as argued no incriminating material was detected as a result of search and the addition was made on the basis of post-search enquiries and statements recorded u/s 132(4) - addition u/s 68 - HELD THAT - Addition made by the Assessing Officer u/s 68 of the Act is not based on any incriminating material and is based on statements recorded during search u/s 132(4) and post-search enquiries. Addition of ₹ 39 lacs was not made on the basis of any incriminating material, but is based on statements recorded during the search u/s 132(4) and post-search enquiries. It has been held in various decisions that completed assessments cannot be disturbed u/s 153A in absence of any incriminating material. We shall refer to the leading cases on this aspect. The Hon ble Delhi High Court in the case of Kabul Chawla 2015 (9) TMI 80 - DELHI HIGH COURT has held that the completed assessment can be interfered with by the Assessing Officer while making the assessment u/s 153A only on the basis of some incriminating material found on or during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or not known in the course of original assessment. Since in the instant case addition of ₹ 39 lacs was made on the basis of statements recorded u/s 132(4) and post-search enquiry and no incriminating material was found/seized during the course of search, therefore, following the decisions cited we hold that no addition could have been made u/s 153A since the assessment was not abated in the instant case. In view of the above, we hold that the ld. CIT(A) was not justified in upholding the action of the Assessing Officer in assuming jurisdiction u/s 153A - Decided in favour of assessee. Addition applying provisions of section 56(2)(viib) - Provisions under section 56(2)(viib) of the Act cannot be made applicable to the case of the assessee inasmuch as the amount was received in the years earlier to the year under consideration. On this score the assessee succeeds. We accordingly answer the grounds in favour of the assessee and hold that the addition cannot be sustained.

Summary

Issues Involved:
1. Assumption of jurisdiction under Section 153A of the Income Tax Act.
2. Addition under Section 68 of the Income Tax Act for unexplained cash credits.
3. Applicability of Section 56(2)(viib) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Assumption of Jurisdiction under Section 153A:
The assessee challenged the assumption of jurisdiction under Section 153A, arguing that no incriminating material was found during the search, and the addition was based on post-search enquiries and statements recorded under Section 132(4). The original return was processed under Section 143(1), and no notice under Section 143(2) was issued within the prescribed time. Therefore, the assessment was not pending at the time of the search. The Tribunal held that the statements recorded under Section 132(4) do not constitute incriminating material and that the assessment had attained finality before the search. Consequently, the Tribunal concluded that the assumption of jurisdiction under Section 153A was invalid.

2. Addition under Section 68 for Unexplained Cash Credits:
The Assessing Officer (AO) added ?39,00,000 as unexplained cash credits under Section 68, stating that the assessee failed to establish the identity, creditworthiness, and genuineness of the investors. The assessee provided detailed information, including PAN numbers, bank statements, and financial statements of the investor companies. The Tribunal noted that the addition was not based on any incriminating material found during the search but on statements and post-search enquiries. Referring to various judicial precedents, the Tribunal held that completed assessments cannot be disturbed under Section 153A in the absence of incriminating material. Therefore, the addition under Section 68 was deleted.

3. Applicability of Section 56(2)(viib):
For the assessment year 2013-14, the CIT(A) invoked Section 56(2)(viib), which deals with the taxation of share premium exceeding the fair market value of shares. The assessee argued that the CIT(A) applied this provision without giving an opportunity to the assessee and that the book value of the shares was higher than the share premium charged. The Tribunal did not delve into the merits of this issue as the assessee succeeded on the legal ground regarding the assumption of jurisdiction under Section 153A.

For the assessment year 2014-15, the CIT(A) confirmed the addition of share premium under Section 56(2)(viib), stating that the transaction was recognized in the financial year 2013-14. The assessee contended that the provisions of Section 56(2)(viib), effective from 01/04/2013, could not be applied retrospectively. The Tribunal agreed, holding that the amount was received in earlier years and the provisions could not be applied retrospectively. Therefore, the addition under Section 56(2)(viib) was not sustained.

Conclusion:
The Tribunal allowed the appeals, holding that the assumption of jurisdiction under Section 153A was invalid in the absence of incriminating material, and deleted the additions under Sections 68 and 56(2)(viib).