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2022 (6) TMI 1392 - AT - Income TaxScope of assessment u/s 153A - completed/unabated assessments - proof of incriminating material as found during search - addition u/s 68 - HELD THAT - As in the case of Kabul Chawla 2015 (9) TMI 80 - DELHI HIGH COURT in its concluding paragraph has observed that, on the date of the search, the assessments for assessment years 2002-03, 2005-06 and 2006-07 already stood completed and the returns in these years were accepted u/s 143(1) of the Act and these acceptance of returns processed under Section 143(1) of the Act was construed by the Hon ble Delhi Court as completion of assessments and this acceptance of return, according to the Hon ble Delhi High Court, could be tinkered with if some incriminating material was found at the premises of the assessee. In the present case AO was of the view that the assessee company was having assets of real value in lieu of shell company shares. AO did not make any analytical investigation or recorded any specific findings. He has acted vaguely and recorded a general finding in a superficial manner touching upon large number of entities. His grievance is that in this year, the assessee has been possessing real assets which were ultimately procured by transacting with shell companies. There is no trail of those shell companies from where the assessee has raised equity capital for the first time or as to how the assessee has utilized the available funds in making investment in the assets of real value. The Assessing Officer just disbelieved the submissions of the assessee. In assessment year 2008-09, when first time capital was raised, its genuineness was accepted by the Revneue. When over a period of time, capital has been used and an asset was created, then the source of such asset cannot be enquired into because it has already been accepted in the earlier year when capital was raised by the assessee. Apart from the above, AO has also not made reference to any seized material which has been fortified to believe that capital raised by the assessee in assessment year 2008-09, was through transactions with shell companies. AO has failed to establish that the assessee has routed its unexplained money through shell companies. When, the Assessing Officer frames the assessment generally by making reference to various events without the help of any seized material no addition can be made u/s 153A of the Act. The assessment order does not even make any reference to the panchnama accepting the evidence found at the premises of the assessee. CIT(A) has rightly held that there was no incriminating material seized during the course of search authorizing the Assessing Officer to make an addition in the assessment framed u/s 153A/143(3) - Decided against revenue.
Issues Involved:
1. Validity of proceedings under Section 153A of the Income Tax Act. 2. Legality of the addition of Rs. 4,43,07,359 made under Section 68 of the Income Tax Act. 3. Requirement of incriminating material for additions under Section 153A. Issue-wise Detailed Analysis: 1. Validity of Proceedings under Section 153A: The appeal was directed against the order of the CIT(A) which had annulled the proceedings under Section 153A read with Section 143(3) of the Income Tax Act. The CIT(A) held that the proceedings were invalid as no incriminating material was found during the search. The CIT(A) noted that the search was conducted on the Mahendra Sethia Group, and none of the searched premises belonged to the assessee company. The assessee company had changed its control and management in FY 2010-11, and the registered address was also changed. The CIT(A) emphasized that the assessment under Section 153A should be based on incriminating material found during the search, which was absent in this case. The CIT(A) relied on the judgments of various High Courts, including the Delhi High Court in CIT vs. Kabul Chawla and the Bombay High Court in CIT vs. Continental Warehousing Corporation, which held that completed assessments could be interfered with under Section 153A only if incriminating material was found during the search. 2. Legality of the Addition of Rs. 4,43,07,359 under Section 68: The revenue contended that the CIT(A) erred in deleting the addition of Rs. 4,43,07,359 made by the Assessing Officer (AO) under Section 68. The AO had added this amount on the grounds that the assessee failed to establish the creditworthiness of the source and genuineness of the transactions. The AO observed that the assessee had transactions with shell companies and failed to satisfactorily explain the source of investments. However, the CIT(A) found that the capital was raised in FY 2007-08, and the assessment for AY 2008-09 was reopened under Section 147, where the AO had accepted the genuineness of the capital. The CIT(A) held that the source of the capital could not be questioned in AY 2011-12 when it was already accepted in the earlier year. Additionally, the AO did not refer to any seized material to substantiate the addition, making the addition unsustainable under Section 153A. 3. Requirement of Incriminating Material for Additions under Section 153A: The Tribunal referred to various authoritative pronouncements, including the Delhi High Court in CIT vs. Kabul Chawla, which summarized the legal position that completed assessments could only be interfered with under Section 153A on the basis of incriminating material found during the search. The Tribunal also cited the Gujarat High Court in Pr.CIT vs. Saumya Construction, which held that any addition or disallowance under Section 153A could only be made on the basis of material collected during the search. The Tribunal noted that the AO's findings were vague and superficial, lacking any reference to incriminating material. The Tribunal concluded that the CIT(A) correctly held that there was no incriminating material seized during the search to justify the addition under Section 153A. Conclusion: The Tribunal dismissed the revenue's appeal, upholding the CIT(A)'s order that the proceedings under Section 153A were invalid due to the absence of incriminating material. The addition of Rs. 4,43,07,359 under Section 68 was also deleted as the source of the capital was already accepted in the earlier assessment year. The cross-objection filed by the assessee was dismissed as it was not pressed. The Tribunal noted that the appeal was filed within the limitation period due to the Supreme Court's order excluding the period from 15.03.2020 to 28.02.2022 for computing the limitation during the COVID-19 pandemic. Order Pronounced: The order was pronounced in the Court on 16th June 2022 at Kolkata.
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