2021 (10) TMI 1432 - AT - Income Tax

Assessment u/s 153A - Addition u/s 68 - receipt of share application/share capital - HELD THAT - Scope of search assessments u/s 153A in respect of concluded and unabated assessments is narrower in its sweep and restricts the right of the AO to examine the issue emanating from some incriminating material. In the absence of any connection with the incriminating material unearthed in search proceedings of assessee, additions/disallowances in respect of concluded assessment i.e. AYs. 2006-07 to 2009-10 in instant appeals, are not permissible in law. The burden of proof towards existence of undisclosed income discovered as a result of search is on the Revenue. No evidence has been referred to by AO or brought on record as claimed to be found at search of assessee to suggest existence of undisclosed income as perceived by the AO. Revenue has failed to rebut the factual assertions made on behalf of the assessee towards non-discovery of incriminating material at the time of drastic action of search on assessee and reference thereto in assessment order. There is nothing on record that information contained in seized documents as per list of inventory, were not recorded or reflected in the books of accounts. Hence, the action of the AO towards making additions in respect of concluded assessments towards undisclosed income is contrary to the judicial dicta. Accordingly, we are of the view that various additions/disallowances made by the AO are clearly beyond the scope of authority vested u/s 153A without discharging the burden to show presence of any incriminating material or evidence deduced as a result of search in so far as completed assessments are concerned. Additions/disallowances made in assessments framed u/s 153A of the Act in respect of captioned assessee pertaining to AYs. 2006-07 to 2009-10 are thus required to be struck down on this score itself. However, the assessments/re-assessments pending on the date of search i.e. AY 2010-11 to 2012-13 which stood abated by operation of law will continue to be governed by ordinary powers of assessment under s. 153A of the Act in accordance with law. The legal ground of jurisdiction raised by the Assessee as per the cross objections, is thus allowed in respect of AY 2006-07 to 2009-10. The additions/disallowances made u/s 68 and towards low yields etc. without showing incriminating documents are bad in law and thus requires to be struck down for AY 2006-07 to 2009-10 in question. Addition u/s 68 - CIT(A) found that primary onus placed upon the assessee u/s 68 was satisfactorily discharged by the assessee. CIT(A) has examined the factual matrix in relation to each and every subscriber individually, as extracted in para 9 of this order, and found that the subscribers were duly assessed and payments have come through banking channels. It was further found that the tangible net worth of the subscribers company is sufficiently enough to meet the criteria of creditworthiness envisaged in law. The bank statements, audited financial statement and confirmations were analyzed. The source of the investment was thus found to be explained satisfactorily in the facts of the case. The assessments of the subscriber companies carried out u/s 143(3)/143(3) r.w.s. 147 were noted. It was further noted the same AO in the case of other group concern accepted the creditworthiness of these cos. for subscription of Pref. share capital. The adverse inference drawn by the AO was found to be unsubstantiated and in the realm of suspicion, surmises and conjectures. On legal position, the CIT(A) has referred to large number of judicial pronouncements. Without reiterating the different facets analyzed by the CIT(A), We find complete force in his view. After detailed examination, the CIT(A) eventually set aside the additions made by the AO under s. 68 in the unabated search assessment without any iota of incriminating material to support the allegation of accommodation entries. We completely endorse his action on merits without demur. - Decided in favour of assessee. Additions on low yield - different amounts of suppression of yield and unaccounted productions/sales - CIT(A) observed that assessee has furnished explanation on all the documents seized during the course of search and the explanation of the assessee were test checked with reference to seized material, books of accounts, bills/invoices and other evidences and found to be satisfactory - HELD THAT - CIT(A), in our mind, has analysed the factual matrix threadbare and passed a very speaking order. Without repeating all the observations of the CIT(A), we find ourselves in complete agreement with the conclusion drawn by the CIT(A). The CIT(A) has objectively analyzed the factual situation and found complete absence of any adverse material against the assessee which can support the allegation of the AO towards unaccounted production presumed on the basis of alleged low yield declared by the assessee. On facts, the CIT(A) has found that the yield declared by the assessee is neither low nor the book results could be impeached by some tangible material to indulge in rejection of books of accounts. We are unable to discern any error whatsoever in the process of reasoning adopted by the CIT(A) while reversing the totally untenable action of the AO. We, thus, decline to interfere with the order of the CIT(A) on this score. In the result, grounds raised by the Revenue challenging the action of the CIT(A) for reversal of additions on the grounds of suppression of yield and unaccounted production and sales are dismissed for AYs. 2006-07 to A.Y. 2009-10 in appeal. Decided in favour of assessee.

Summary

Issues Involved:
1. Additions under Section 68 of the Income Tax Act for unexplained share application money.
2. Additions for suppression of yield and unaccounted production/sales.
3. Jurisdiction under Section 153A for making additions/disallowances in the absence of incriminating material in unabated assessments.

Issue-Wise Detailed Analysis:

1. Additions under Section 68 of the Income Tax Act for unexplained share application money:

The Revenue challenged the relief granted by the CIT(A) concerning additions made under Section 68 of the Act for share application money received by the assessee in various assessment years. The CIT(A) found that the AO made these additions without any reference to incriminating material detected during the search. The CIT(A) noted that the assessee had provided sufficient documentary evidence to substantiate the identity, creditworthiness, and genuineness of the transactions. This included PAN, address, audited financial statements, bank statements, and confirmations from the share applicants. The CIT(A) also observed that the AO had not brought any clinching material or evidence to prove that the share capital money belonged to the assessee or that it was undisclosed income. The CIT(A) relied on various judicial precedents, including the Supreme Court's decision in CIT vs. Lovely Exports (P) Ltd., to conclude that the addition of share application money as unexplained cash credits was uncalled for and hence deleted. The Tribunal endorsed the CIT(A)'s findings, noting that the primary onus under Section 68 was satisfactorily discharged by the assessee, and the AO's adverse inference was unsubstantiated and based on suspicion.

2. Additions for suppression of yield and unaccounted production/sales:

The AO made additions on account of low yield declared by the assessee in its sponge iron division, alleging unaccounted production and sales. The CIT(A) found that the AO had failed to establish a nexus between the mathematical calculations of highest and lowest consumption of raw materials and the yield of 60% adopted by the AO. The CIT(A) compared the yield declared by the assessee with other comparable cases and found that the yield achieved by the assessee was generally more than the average industry yield. The CIT(A) also noted that the AO had not provided any basis for the standard yield of 60% and had not pointed out any specific defect in the books of accounts. The CIT(A) observed that the books of accounts were regularly maintained, audited, and supported by excise records, and the AO had not brought any tangible material to support the allegation of unaccounted production. The Tribunal agreed with the CIT(A)'s findings, noting that the AO's action was based on suspicion and conjectures without any incriminating material. The Tribunal found no merit in the AO's rejection of the books of accounts and upheld the CIT(A)'s decision to delete the additions.

3. Jurisdiction under Section 153A for making additions/disallowances in the absence of incriminating material in unabated assessments:

The assessee raised a legal objection that in the absence of incriminating material, the AO's jurisdiction under Section 153A to make additions/disallowances in unabated assessments was ousted. The CIT(A) dismissed this objection, but the Tribunal examined the legal position and found that the scope of assessment under Section 153A is limited to incriminating evidence found during the search. The Tribunal relied on various judicial precedents, including the Delhi High Court's decision in CIT vs. Kabul Chawla and the Gujarat High Court's decision in CIT vs. Saumya Constructions Pvt. Ltd., to conclude that in the absence of incriminating material, additions/disallowances in respect of concluded assessments are not permissible. The Tribunal held that the Revenue had failed to show the presence of any incriminating material, and therefore, the additions made by the AO were beyond the scope of authority under Section 153A. Consequently, the Tribunal allowed the legal ground of jurisdiction raised by the assessee and struck down the additions/disallowances made for the assessment years in question.

Conclusion:

The Tribunal dismissed the Revenue's appeals and allowed the assessee's cross objections, holding that the additions under Section 68 for share application money and for suppression of yield and unaccounted production/sales were not sustainable in the absence of incriminating material found during the search. The Tribunal also held that the AO's jurisdiction under Section 153A to make additions/disallowances in unabated assessments was ousted in the absence of incriminating material.