2014 (1) TMI 1942 - AT - Income Tax

Assessment u/s 153A - Addition u/s 68 - bogus LTCG - penny Stocks - any incriminating material found in the search or not? - whether in respect of completed / unabated assessment, any addition can be made by the AO in absence of any incriminating material found during the course of search u/s 132 or requisition u/s 132A or not. HELD THAT - In case of unabated assessment, the reassessment can be made on the basis of the satisfaction note pursuant to which the search has been initiated and books of account or other documents not produced in the course of original assessment but found in the course of search which indicate undisclosed income or undisclosed property, and secondly, the reassessment can be made on the basis of the undisclosed income or undisclosed property which is physically found and discovered in the course of search. In case of completed assessment and not abated as on the date of search, as in the instant case, the AO has to reassess the total income of the assessee and the assessment already completed can be tinkered with or distrusted where some incriminating material is found and seized during the course of search indicating undisclosed income of the assessee. AO would assume the jurisdiction to reassess the total income taking into consideration the incriminating material unearthed during the search and the other material available with the AO including the income declared in the return. In case no incriminating material is unearthed during the search, the AO cannot reassess taking into consideration the other material in respect of completed assessments/unabated assessments. In the instant case, there is nothing on record and/or brought to our notice during the course of hearing that the Competent authority was seized of the aforesaid statement of Shri S. K Khemka at the time of recording of the satisfaction whereby the authorization has been issued and the search warrant was issued whereby the search has been initiated in case of the assessee. Therefore, the statement of Shri S.K Khemka is availability of other material/documentation which has come in the knowledge and possession of the AO for the first time during the course of reassessment proceedings and therefore can t be referred to and relied upon by the AO to augment, supplement and add to the material found during the course of search in terms of the share certificates and contract notes and in terming the same as incriminating material found during the course of search in case of the assessee. The contents advanced by the ld CIT/DR therefore cannot be accepted. We are of the considered view that the addition made by the AO during the reassessment proceedings completed u/s 153A is not based on any incriminating material found or seized during the course of search and seizure action u/s 132 of the Act in case of the assessee. Being a case of completed/unabated assessment, in absence of any incriminating material found during the course of search, the addition so made cannot be sustained and is hereby directed to be deleted. In the result, the ground of the assessee s appeal is allowed.

Summary

Issues Involved:
1. Legality of addition under Section 153A in absence of incriminating material.
2. Relevance and admissibility of statements recorded during investigation.
3. Treatment of share transactions and long-term capital gains (LTCG).

Issue-Wise Detailed Analysis:

1. Legality of Addition under Section 153A in Absence of Incriminating Material:

The primary issue in these appeals is whether additions can be made under Section 153A of the Income Tax Act in the absence of incriminating material found during the search. The assessee argued that no incriminating evidence was found during the search, and therefore, the addition of Rs. 87,04,733/- on account of LTCG was not justified. The judgment of the Hon'ble Supreme Court in the case of 'PCIT-III Vs. Abhisar Buildwell Pvt. Ltd.' was cited, which held that in the absence of incriminating material, no addition can be made for completed/unabated assessments. The Tribunal agreed with this view, stating that the share certificates and contract notes found in the locker of the assessee's family members did not constitute incriminating material as they corroborated disclosed transactions. Consequently, the addition made by the AO was directed to be deleted.

2. Relevance and Admissibility of Statements Recorded During Investigation:

The AO relied on statements recorded by the Investigation Wing, Kolkata, particularly those of Shri S.K. Khemka, to justify the addition. The assessee contended that these statements were recorded during investigations unrelated to the search on the assessee and were not incriminating evidence found during the search. The Tribunal noted that the statements were recorded well before the date of the search and were not part of the material found during the search. The Tribunal concluded that these statements could not be considered incriminating material for the purpose of Section 153A reassessment. Furthermore, the Tribunal emphasized that the assessee was not given an opportunity to cross-examine the individuals who made these statements, rendering the reliance on these statements unjustified.

3. Treatment of Share Transactions and Long-Term Capital Gains (LTCG):

The assessee had purchased shares of M/s Maple Goods (P) Ltd. in FY 2010-11, which were later amalgamated with M/s Access Global Ltd., and claimed LTCG exemption on the sale of these shares. The AO argued that the shares were penny stocks and the LTCG was bogus, relying on statements from brokers and financial data of the companies. However, the Tribunal found that the transactions were conducted through recognized stock exchanges, payments were made through banking channels, and all transactions were supported by documentary evidence. The Tribunal noted that the AO did not dispute the facts of the transactions but questioned their genuineness based on assumptions and statements recorded during unrelated investigations. The Tribunal concluded that the transactions were genuine and the LTCG claimed by the assessee was valid.

Conclusion:

The Tribunal held that in the absence of incriminating material found during the search, the addition made under Section 153A was not sustainable. The reliance on statements recorded during unrelated investigations without providing the assessee an opportunity for cross-examination was unjustified. The transactions related to the purchase and sale of shares were found to be genuine, and the LTCG claimed was valid. Consequently, the appeals filed by the assessees were partly allowed.