2021 (12) TMI 1459 - AT - Income Tax

Assessment u/s 153A - Addition u/s 68 - Whether the AO had validly assumed jurisdiction to issue notice u/s 153A of the Act upon the assessee for AY 2011-12 in terms of fourth proviso to Section 153A of the Act read with Explanation 2 of the Act ? - HELD THAT - Only upon valid assumption of jurisdiction, the AO ought to have proceeded against the assessee to assess the escaped asset of the assessee and thereafter other undisclosed income if any as per law. And when he does that, he first has to make addition in respect of the escaped asset based on which AO initiated section 153A proceedings and then only based upon the incriminating documents unearthed in the course of search, that he can make additions/disallowances in respect of other items of escaped income/credit/expense etc., if any (for unabated assessment years); in the event if no addition could be made by AO in respect of undisclosed asset based on which AO initiated section 153A proceedings then the AO has to drop the section 153A proceedings because, he has assumed jurisdiction on a wrong/non-existing undisclosed asset and can resume only u/s 153A only on satisfaction of new/fresh undisclosed asset/jurisdictional fact, which principle will discuss separately. Pre-requisite condition to issuance of notice u/s 153A for the 7th 10th AY - The extended jurisdiction to invoke/assess 7th 10th AY is conferred on the AO by authority of law and the AO cannot confer to himself the jurisdiction in a casual manner by stating/substituting the specific jurisdictional fact to encompass all seized material. It is common knowledge that, seized material may contain both disclosed undisclosed assets, liabilities, expenses income. So, it is imperative that before issuance of notice u/s 153A for the extended period , the AO sets out his objective satisfaction from the seized material, the details of the specified/undisclosed assets in his possession qua the assessee for AY 2011-12 valued Rs. 50 lakhs or more. If this essential requirement of law is not satisfied, the AO does not get the authority of law to invoke the jurisdiction u/s 153A for 7th to 10th AY. For this, we rely upon the dictum of the Privy Council in Nazir Ahmed Vs. King Emperor 1936 (6) TMI 11 - PRIVY COUNCIL that when a statute requires a thing to be done in a particular manner, it must be done in that manner or not at all. As discussed the language of the fourth proviso to section 153A of the Act show that issuance of notice can be resorted to by the AO only after he is in possession of the jurisdictional fact, which is found to be absent in the present case. Therefore according to us, the AO only after having in his possession the jurisdictional fact could have assumed jurisdiction and issued notice u/s. 153A of the Act or else he could not have issued notice, as done in this case. For the reasons elaborately discussed by us in the foregoing, we thus hold that the notice u/s. 153A dated 11.09.2019 was issued by the AO without authority of law and without satisfying the essential jurisdictional fact, and hence the issuance of notice u/s. 153A is held to be bad in law. Thus according to us, the pre-requisite condition for conferment of jurisdiction under section 153A for the assessment of AY s falling from seventh (7th) to tenth (10th) assessment years preceding the searched assessment year being the jurisdictional fact in this case is absent and the AO without fulfilling this essential jurisdictional fact erroneously invoked jurisdiction u/s 153A of the Act for AY 2011-12, which is a serious flaw and a jurisdictional defect, that cannot be cured. Additions on account of unexplained cash credit and that too share capital, which is in the nature of liability could not have been made by AO, unless he first made an addition of undisclosed asset valued at Rs. 50 Lakhs or more. So in this case, as there was no addition made by AO on account of undisclosed asset, we can safely infer that there was no jurisdictional fact in the AO s hand or in his possession when he assumed jurisdiction u/s 153A for AY 2011-12 in the first place itself. As, the very usurpation of jurisdiction u/s. 153A of the Act is found to be bad in law for want of jurisdiction, the AO was precluded from making any other addition in the assessment for AY 2011-12. Hence, the AO s action of making addition u/s 68 of the Act in the relevant AY 2011-12 is held to be unsustainable for want of jurisdiction and is therefore is quashed. Whether in absence of any incriminating material found in the course of search at the premises of the assessee, the additions/disallowances made in the assessments of the assessee, which were unabated/ non-pending on the date of search, could be held to be sustainable on facts and in law? - We find ourselves in agreement with the above findings of the Ld. CIT(A) that this document was a share-holding pattern document prepared by way of secretarial compliance report, which as the assessee has shown, was filed along with the company s annual return in Form MGT-7 on 28-11-2017 with the Registrar of Companies and was therefore available in the public domain (much prior to the date of search). It is found to contain the details of the name of shareholders, their amount and percentage of shareholdings. In our considered view, this document was a regular business document having no incriminating content whatsoever. Nothing whatsoever has been brought on record by the Revenue to correlate or link as to how the contents of this statement led to unearthing of unexplained cash credit by the AO and therefore the aforesaid factual finding of the Ld. CIT(A) remains uncontroverted. Hence, we do not see any reason to interfere with the order of the Ld. CIT(A) on this aspect and hold that the seized document GCL-HD-1 did not constitute incriminating material or evidence. For the reasons discussed we hold that the seized document GCL-HD-1 referred by the AO for justifying the addition/s made u/s 68 of the Act in the orders impugned before us, did not constitute incriminating material and therefore no addition/s was legally permissible in the assessments framed u/s 153A for the AYs 2011-12 to 2015-16 for which the assessment did not abate, when the search was conducted on 22-12-2017. The assessee thus succeeds on Question (B) as well. Whether the Joint Commissioner of Income-tax, Guwahati had validly granted approval u/s 153D of the Act and therefore whether the consequent order passed u/s 153A/143(3) was sustainable in law or not ? - As noted that the relevant copies of the letters addressed by the AO to the Jt.CIT and the letters of approval issued by the latter are not available on record, which are necessary to adjudicate this particular issue. Moreover, since we have already held the orders passed u/s 153A/143(3) of the Act and the additions made therein to be unsustainable in law for the reasons set out above, we are not inclined to return our findings with regard to this legal issue raised in the cross objections as the same has now become academic in nature. Whether the assessee had discharged its onus of establishing the identity and creditworthiness of the share subscribers and substantiating genuineness of the transactions and therefore whether the additions made u/s 68 on account of share application monies received by the appellant was tenable on facts and in law ? - AO s failure to personally examine the witness and his denial to allow the assessee opportunity to cross examine the Departmental witness on whose statements he was relying upon was a serious fundamental flaw which resulted in the additions made u/s 68 of the Act to be a nullity as held by the Hon ble Supreme Court in Andaman Timber 2015 (10) TMI 442 - SUPREME COURT Whether the AO had rightly computed interest u/s 234A - We find that the AO had wrongly taken the due date of filing of return in response to the notices issued under Section 153A of the Act dated 11.09.2019 to be the original due date u/s 139 of the Act i.e. 30.09.2011 for AY 2011-12, 30.09.2012 for AY 2012-13 and so on, rather than the day following the expiry of the time limit prescribed in notice u/s 153A of the Act, resulting in erroneous and excessive levy of interest u/s 234A of the Act. The AO is accordingly directed to re-compute the levy of interest u/s 234A of the Act in terms of sub-section (3) of Section 234A of the Act i.e. from the date on which the time limit for filing of return of income in response to notices u/s 153A of the Act dated 11.09.2019 had expired. This ground therefore stands allowed for statistical purposes. Adjustment of seized cash by way of self-assessment tax in the hands of the assessee in AY 2017-18 - HELD THAT - AR as brought to our notice that the assessee had filed a petition dated 28-02-2020 before the AO requesting him to adjust this seized cash against their tax liability for AY 2017-18. Having regard to the provisions of Section 132B(iii) of the Act, the AO is accordingly directed to grant the credit of seized cash by way of self-assessment tax in accordance with law.

Summary

Issues Involved:
1. Validity of jurisdiction to issue notice u/s 153A for AY 2011-12.
2. Validity of additions in absence of incriminating material for unabated assessments.
3. Validity of approval u/s 153D.
4. Discharge of onus by assessee regarding share application money u/s 68.
5. Computation of interest u/s 234A.
6. Issuance of assessment order under prescribed ITBA Module.
7. Set-off of business loss against addition.
8. Tax rate applicability on addition u/s 68.
9. Credit of seized cash as self-assessment tax.

Issue-wise Analysis:

(A) Validity of Jurisdiction to Issue Notice u/s 153A for AY 2011-12:
The AO issued notice u/s 153A for AY 2011-12 based on the fourth proviso to Section 153A, which allows reopening of assessments up to ten years if undisclosed income in the form of assets exceeding Rs. 50 lakhs is found. The assessee contended that no such undisclosed asset was found, and the AO did not provide details of any such asset. The Tribunal held that the jurisdictional fact (existence of undisclosed asset) was absent, making the notice u/s 153A invalid. The AO's action of issuing the notice without satisfying the essential jurisdictional fact was deemed bad in law.

(B) Validity of Additions in Absence of Incriminating Material for Unabated Assessments:
The Tribunal noted that for AYs 2011-12 to 2015-16, the assessments were unabated, and no incriminating material was found during the search. The AO relied on a document (GCL-HD-1) which was a shareholding pattern filed with the Registrar of Companies and not incriminating in nature. The Tribunal held that in the absence of incriminating material, no additions could be made in unabated assessments, and thus, the additions made by the AO were unsustainable.

(C) Validity of Approval u/s 153D:
The assessee contended that the approval u/s 153D was granted mechanically without application of mind. The Tribunal noted that the relevant letters and documents were not available on record and since the orders were already held unsustainable on other grounds, this issue was left open without a finding.

(D) Discharge of Onus by Assessee Regarding Share Application Money u/s 68:
The assessee provided details of shareholders, their PAN, financial statements, and bank statements. The AO made additions u/s 68 on the ground that the source of source of funds was not explained. The Tribunal held that the assessee had discharged its burden of proving the identity, creditworthiness, and genuineness of the transactions. The AO's reliance on statements of an alleged entry operator without allowing cross-examination was also found to be a serious flaw. The additions made by the AO were deleted.

(E) Computation of Interest u/s 234A:
The AO levied interest u/s 234A from the original due date of filing return u/s 139(1) instead of the due date in the notice u/s 153A. The Tribunal directed the AO to recompute the interest from the date on which the time limit for filing return in response to the notice u/s 153A had expired.

(F) Issuance of Assessment Order under Prescribed ITBA Module:
This issue was not pressed by the assessee at the time of hearing and was dismissed.

(G) Set-off of Business Loss Against Addition:
Having deleted the addition of Rs. 34,69,54,848/- made u/s 68 in AY 2017-18, this issue became academic and was dismissed as infructuous.

(H) Tax Rate Applicability on Addition u/s 68:
This issue also became academic due to the deletion of the addition and was dismissed as infructuous.

(I) Credit of Seized Cash as Self-Assessment Tax:
The Tribunal directed the AO to grant credit of seized cash of Rs. 61,73,000/- as self-assessment tax in accordance with Section 132B(iii).

Conclusion:
The Tribunal dismissed the Revenue's appeals and partly allowed the assessee's cross objections, providing relief on various grounds including invalidity of jurisdiction u/s 153A, absence of incriminating material, and proper discharge of onus u/s 68.