2017 (2) TMI 172 - AT - Income Tax

Validity of the additions made in the assessment order under section 143(3) r.w.s. 153A - LTCG treated as Bogus & Commission paid on bogus LTCG - Held that - It is not disputed that the issue on which the AO made addition in the post search order of assessment passed under section 143(3) r.w.s 153A of the Act for A.Y. 2006-07, i.e. LTCG treated as bogus cash credit has already been accepted by the AO in the regular order of assessment for A.Y. 2006-07 under section 143(1) of the Act on 25.09.2007, prior to the search. The law mandates that only pending assessment proceedings abate and it is only those years in which proceedings have abated that are to be treated as normal assessment proceedings. For other years, where assessment proceedings have not abated the AO is empowered to make additions only on the basis of evidence, material, information or incriminating documents found in the course of search on an assessee. If as on the date of search, no proceedings are pending for any assessment year and the concerned transactions have been disclosed in the regular books of account prior to the search, additions in respect of such transactions are beyond the scope of assessments to be made under section 153A of the Act and the AO is not empowered to do so. Therefore, in our view, the AO in the case on hand was not empowered by law to make the additions of LTCG treated as bogus cash credit and consequent bogus commission, in the post search assessment as the same was already admittedly disclosed in the original return of income filed for A.Y. 2006-07 which was assessed under section 143(1) of the Act on 25.09.2007 before the search took place on 13.10.2010. Thus AO did not have the power to make the impugned additions of (i) LTCG treated as unexplained cash credits and (ii) Bogus commission expenditure in the absence of any incriminating evidence, documents or material found in this regard in the course of search of this assessee and that consequently, both the aforesaid additions are beyond the scope of the provisions of section 153A of the Act. - Decided in favour of assessee

Summary

Issues Involved:
1. Long Term Capital Gains (LTCG) treated as unexplained cash credit.
2. Bogus commission expenditure.
3. Validity of additions made in the assessment order under section 143(3) r.w.s. 153A.

Detailed Analysis:

1. Long Term Capital Gains (LTCG) treated as unexplained cash credit:
The assessee declared LTCG of ?34,42,139/- on the sale of 75,000 shares of Asahi Infrastructure, claiming it as exempt under section 10(38) in the original return for A.Y. 2006-07. The assessment was initially completed accepting the returned income. However, post a search on 13.10.2010, the AO issued a notice under section 153A and reassessed the income, treating the LTCG as unexplained cash credit and adding ?34,49,139/- to the income. The CIT(A) annulled this addition, stating that the AO did not have the power to make such additions in the absence of any incriminating material found during the search. The ITAT upheld the CIT(A)’s decision, emphasizing that the AO could only make additions based on evidence or material found during the search, which was not the case here.

2. Bogus commission expenditure:
Alongside the LTCG addition, the AO also added ?1,72,107/- as bogus commission expenditure. The CIT(A) annulled this addition for the same reason as the LTCG, i.e., no incriminating material was found during the search. The ITAT supported this view, reiterating that the AO lacked the authority to make such additions without incriminating evidence from the search.

3. Validity of additions made in the assessment order under section 143(3) r.w.s. 153A:
The CIT(A) and subsequently the ITAT focused on the legal provisions of section 153A, which mandate that only pending assessment proceedings abate and for other years, additions can be made solely based on incriminating material found during the search. Since the LTCG and commission expenditure were already disclosed in the original return and no new incriminating material was found during the search, the additions were deemed beyond the scope of section 153A. The ITAT upheld the CIT(A)’s annulment of these additions, emphasizing that completed assessments do not abate and cannot be reopened without new incriminating evidence.

Conclusion:
The ITAT dismissed the Revenue’s appeal, upholding the CIT(A)’s decision that the AO did not have the power to make the additions of LTCG treated as unexplained cash credits and bogus commission expenditure in the absence of any incriminating material found during the search. Consequently, the assessee’s cross objections were rendered infructuous and dismissed. Both the Revenue’s appeal and the assessee’s cross objections for A.Y. 2006-07 were dismissed.