2017 (8) TMI 20 - AT - Income Tax

Applicability of the provisions of Section 153C - share application addition - Held that - As found that of post search investigation on 15/04/2010, a summons u/s 131 was issued to the director of the company Mr. Narayan Hari Halan. He was appointed as director of the company on 15/02/2010. He was nowhere connected with the affairs of Jogia Properties Ltd or Karburi Properties Ltd., during the period 01/04/2007 to 31/03/2008 and 01/04/2008 to 31/03/2009. He was not aware about the affairs of the company for the period 01/04/2007 to 31/03/2009. We found Tribunal have elaborately dealt with the summon issued to Mr. Narayan Hari Halan in its order dated 18/12/2015. We found that the director of the company while recording statement has clearly stated that Mr. Jose Mathews is not fully aware about the business activity of the company. The statement made by Mr. Jose is not true. He also further stated that owing to the facts mentioned to him by the Authorised Officer and the circumstances of that case he is offering certain sum received as share capital as the income for A.Y. 2008-09 and 2009-10. The statement of the director cannot be referred to as the document found during the course of search and on the basis of the statement no notice u/s 153C can be issued. We had also gone through the statement of Mr. Mukesh Chokshi. In this statement there is no reference to the assessee. There is no allegation that the assessee has given the cash and received the Cheque by way of share application. The statement of Mr. Mukesh Chokshi cannot be base for acquiring jurisdiction by issue of notice u/s 153C is concerned. The Tribunal have also dealt threadbare with the statement of Shri Mukesh Chokshi in its order dated 18/12/2015. 47. In view of the above, we can conclude that no document belonging to the assessee was found during the course of search and also none of the statements of Mr. Jose Mathews, Mr. Narayan Hari Halan or Mr.Mukesh Chokshi can be construed as a document belonging to the assessee for issue of notice u/s 153C. - Decided in favour of assessee.

Summary

Issues:
1. Legality of the assessment framed under Section 153C of the Income Tax Act.
2. Addition made under Section 68 on account of unexplained investment in share capital.

Issue-wise Detailed Analysis:

1. Legality of the Assessment Framed under Section 153C:
The assessee challenged the legality of the assessment framed under Section 153C, contending that the conditions of Section 153C were not satisfied. The assessee argued that no satisfaction was recorded by the Assessing Officer (AO) of the searched person (M/s. Jogia Properties Ltd.) to initiate proceedings under Section 153C against the assessee. The inspection report confirmed that no satisfaction was recorded by the AO of the searched person, which is a prerequisite for invoking Section 153C. The Tribunal referred to several judicial pronouncements, including the Gujarat High Court's decision in Vijaybhai N. Chandrani (333 ITR 436), which held that the AO must record satisfaction that the seized documents belong to a person other than the searched person. The Tribunal concluded that the notice issued under Section 153C was invalid due to the lack of recorded satisfaction, rendering the assessment framed under Section 153C void.

2. Addition Made Under Section 68 on Account of Unexplained Investment in Share Capital:
The AO made additions under Section 68, treating the share capital received from various companies as unexplained credits. The AO's decision was based on the statements of Mr. Jose Mathews and Mr. Mukesh Chokshi, who allegedly provided accommodation entries. However, the CIT(A) and the Tribunal found that the assessee had submitted sufficient documentary evidence to prove the identity, creditworthiness, and genuineness of the share applicants. The Tribunal noted that the assessee provided PAN details, bank statements, balance sheets, and confirmations from the share applicants. The Tribunal also observed that no incriminating documents were found during the search, and the statements of Mr. Jose Mathews and Mr. Mukesh Chokshi were retracted and lacked corroborative evidence. The Tribunal referred to the Supreme Court's decision in Lovely Exports Pvt. Ltd., which established that once the identity of the share applicants is proven, no addition can be made under Section 68 in the hands of the company. Consequently, the Tribunal upheld the CIT(A)'s decision to delete the additions made under Section 68.

Conclusion:
The Tribunal dismissed the revenue's appeals and allowed the assessee's cross-objections, concluding that the assessments framed under Section 153C were invalid due to the lack of recorded satisfaction, and the additions made under Section 68 were not justified as the assessee had proven the identity, creditworthiness, and genuineness of the share applicants.