2017 (4) TMI 1008 - AT - Income Tax

Addition u/s 68 - assessment u/s 153A - contention of the assessee is that all these companies have been dissolved as the names of these companies have been struck off by the Registrar of Companies for non filing of their annual returns - Held that - Argument of the assessee does not hold water as the search took place on 26.11.2009 and further the notice u/s 153C/ 153A was issued on 25.05.2011. At that particular time all the companies were in existence. Furthermore, the names of the companies have been struck off for non filing of returns with the Registrar of Companies. However, such as act does not have any implications in the Income Tax proceedings where the companies have made investment. If the argument of the ld AR before the ld CIT(A) is to be believed then when the name of the depositor company struck off the investment made by them in the company also becomes share issued in the hands of non existing person. In any way that is not the case of the assessee. With respect to all the four creditors the assessee has not produced their return of income, their balance sheets, and even the confirmation and the bank statements. In absence of all these things it is not correct on the part of the ld CIT(A) to delete the addition u/s 68 with respect to the above four companies amounting to ₹ 32123000/-. Therefore, we set aside the whole issue of addition u/s 68 with respect to above four companies amounting to ₹ 3.21 crores back to the file of the ld AO with a direction to grant one more opportunity to the assessee to prove the identity, creditworthiness and genuineness of the above transaction after granting assessee proper opportunity of hearing. In the result ground No. 1 of the appeal of the revenue is allowed with above direction. Proof of incriminating material found - Held that - All the evidences gathered during the course of search coupled with the availability of the books of accounts of the assessee along with other documents at the office of Today Group and corroborated by statement of several persons during the course of the survey at the address of the investor company were not at all appreciated by the ld CIT (A) , In fact these are the material which has shown a link to the ld Ao to make addition on account of issue of share capital u/s 68 of the act. Therefore we find that the order of the ld CIT (A) has not appreciated the evidences and their gravity and has held that the addition has been made without the evidences unearthed during the course of search in spite of the facts that ld AO has pointed out all these materials such as books of accounts, other documents, statements of various persons, survey report on the investor companies, including the pre search inquires and post search inquires conducted by revenue over and above the modus operandi of the group discussed , which should have been considered in proper perspective. The ld AO has devoted substantial portion of his assessment order on that incriminating material only, which has not been appreciated by the ld CIT (A). In view of this we set aside this ground of appeal also before the ld CIT (A) with a direction to examine the material unearthed during the course of search on the group looking at the pancahnama including the statements of various persons ,survey reports on investing companies and then decide the issue that whether the addition has been made by the ld AO based on the incriminating material found during the course of search or not. In the result ground no 2 of the appeal of the revenue is allowed with above direction.

Issues Involved:
1. Deletion of addition under Section 68 of the Income Tax Act, 1961.
2. Validity of addition in search assessment under Sections 153C/153A without incriminating material.

Issue-wise Detailed Analysis:

1. Deletion of Addition under Section 68:

The revenue challenged the deletion of additions of ?23,265,000 for AY 2004-05 and ?32,123,000 for AY 2007-08 made by the Assessing Officer (AO) under Section 68 of the Income Tax Act, 1961. The AO had added these amounts as unexplained cash credits, arguing that the assessee failed to satisfactorily explain the source and nature of these credits.

The assessee, engaged in providing medical transcription services and remote accounting, had shown significant increases in share capital. The AO noted that the funds were received from various paper/shell companies controlled by the Today Group, which were used to transfer unaccounted money through accommodation entries.

The CIT(A) deleted the additions, holding that no incriminating material was found during the search to justify the additions under Sections 153C/153A. The CIT(A) also noted that the assessee had furnished details such as PAN, audited financial statements, and bank statements to substantiate the genuineness of the transactions and creditworthiness of the investors.

2. Validity of Addition in Search Assessment under Sections 153C/153A:

The revenue argued that the CIT(A) erred in holding that no addition could be made in the search assessment under Sections 153C/153A without incriminating material. The revenue pointed out that during the search and survey operations, it was found that the companies providing funds were merely paper companies with no real business activities, controlled by the Today Group. Statements from various individuals and documents seized during the search indicated that these companies were used to route unaccounted money.

The tribunal noted that the AO had relied on substantial evidence, including statements from key persons, survey reports, and documents found during the search, to establish that the funds were unaccounted money routed through paper companies. The tribunal found that the CIT(A) had not properly appreciated these evidences.

Tribunal’s Decision:

For AY 2007-08, the tribunal set aside the deletion of the addition of ?32,123,000 and remanded the matter back to the AO, directing the AO to grant the assessee another opportunity to prove the identity, creditworthiness, and genuineness of the transactions. The tribunal also directed the CIT(A) to re-examine the material unearthed during the search and decide if the addition was based on incriminating material.

For AY 2004-05, the tribunal followed a similar approach, setting aside the deletion of the addition of ?23,265,000 and remanding the matter back to the AO with similar directions.

Conclusion:

The appeals for AY 2004-05 and AY 2007-08 were allowed for statistical purposes, with directions to re-examine the evidence and provide the assessee an opportunity to substantiate the transactions. The tribunal emphasized that the additions should be based on incriminating material found during the search.

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