2017 (6) TMI 774 - AT - Income Tax

Assessment u/s 153A - unexplained share applications - reference to incriminating material - Held that - Perusal of the assessment order reveals that the AO has not referred to any incriminating material while making the additions but has rather relied on the statement of Mr SK Gupta and has doubted the genuineness of the transaction as well as the creditworthiness of the share applicants. CIT (appeals) has also not made any linkage of the impugned addition to any incriminating material found during the course of search but has rather confirmed the addition relying on preponderance of probabilities as espoused in the case of Sumati Dayal(1995 (3) TMI 3 - SUPREME Court). This action could have been upheld if it was a regular assessment under section 143 (3) of the Act but provisions of section 153A, restrict the ambit of assessment to incriminating material unearthed during the course of search. Thus, respectfully following case CIT Central III vs. Kabul Chawla ( 2015 (9) TMI 80 - DELHI HIGH COURT) we find that the addition has been wrongly added to the income of the assessee. - Decided in favour of assessee.

Summary

Issues:
Assessment under section 153A/143(3) of the Act, addition of alleged accommodation entries, reliance on incriminating material, fair opportunity of being heard, levy of interest u/s 234B.

Analysis:

1. Assessment under section 153A/143(3) of the Act:
The appeal was against the CIT (A)'s order confirming the assessment under section 153A for the assessment year 2005-06. The assessee argued that the additions made were beyond the scope of assessment as no incriminating material was found during the search proceedings. The ITAT analyzed the provisions of section 153A and noted that completed assessments do not abate, and assessments pending under section 143(3) are considered completed. As no incriminating material was found during the search, the addition of &8377; 45,00,000 was deemed unjustifiable.

2. Addition of alleged accommodation entries:
The CIT (A) had confirmed the addition of &8377; 45,00,000 as alleged accommodation entries under section 68 of the Act. The assessee contended that no amount was received from the alleged accommodation entry operator and provided details of transactions, which were ignored by the lower authorities. The ITAT, following the principles laid down by the Delhi High Court, held that the addition lacked a basis in incriminating material and was unjustified.

3. Reliance on incriminating material:
The AO had relied on the statement of Mr. SK Gupta without linking it to any incriminating material found during the search. The CIT (A) also failed to establish a connection between the addition and any seized material, relying instead on probabilities. The ITAT emphasized that under section 153A, assessments must be based on incriminating material unearthed during the search, which was not the case here.

4. Fair opportunity of being heard:
The assessee raised concerns about not being provided with an opportunity to cross-examine Mr. SK Gupta. The ITAT noted that the lack of this opportunity undermined the basis of the addition made on his alleged statement. The failure to allow cross-examination violated the principles of natural justice, further weakening the case for the addition.

5. Levy of interest u/s 234B:
The ITAT also addressed the issue of the levy of interest under section 234B, concluding that it was not applicable to the facts of the appellant company. This decision was part of the overall ruling allowing the assessee's appeal against the assessment order.

In conclusion, the ITAT allowed the appeal filed by the assessee, emphasizing the importance of adhering to the provisions of section 153A and ensuring that additions are based on incriminating material discovered during the search. The judgment highlighted the necessity of providing a fair opportunity of being heard and following principles of natural justice in tax assessments.