2017 (8) TMI 1055 - AT - Income Tax

Assessment u/s 153A - unexplained cash credit u/s 68 - Held that - There are incriminating material during search in the form of unreconciled balance sheets, entries remaining unexplained in the Axis bank s bank statement coupled with the statement of the director of the company offering disclosure which is further being confirmed during the course of assessment proceedings. Therefore we are not in agreement with the assessee that no incriminating material was found by revenue during the course of search. Therefore in this case the statement of the director of the company was further corroborated by wrong return to the income tax department and Ministry of Corporate Affairs and unexplained entries in the bank account for which assessee s director could not explain coupled with the report of the investigation wing with respect to investor companies. In view of the above facts we are of the view that once the assessee itself has accepted that there are unaccounted income which covers any specified entries which may open up Pandora s box and then it cannot be contended that no incriminating material was found during the course of search. Further the order u/s 153A has also been correctly made by ld AO in view of finding of CIT (A) that search was conducted on premises of the assessee. - Decided against assessee. Unexplained cash credit out of the above 13 parties which are located at Kolkata that enquiry letter were issued u/s 133 (6) of the Act to six person only and all of them on 11.02.2013 and 18.03.2013 submitted the information about their annual returns filed with the tax authorities, their bank statement and their annual accounts. The ld first appellate authority also noted that this information received by the AO remained uncontroverted as well as note investigated. The ld CIT(A) further correctly also noted that the flow of funds from the investor companies to the assessee. There is no report available pertaining to the other assessee on whom the Assessing Officer relied very heavily.- Decided against revenue. Unsecured loan from Index Securities without bringing an adverse material on record, the Assessing Officer s conclusion that the appellant did not discharge its onus is not borne out of the material on record. As per the provisions of section 68 of the IT Act, 1961, the appellant discharged its onus on the identity of the lender, genuineness of the transaction as it was through banking channels and not disputed channel and submitted ITR to show the creditworthiness. Therefore, in the absence of any such finding by the Assessing Officer to say that the loan amount taken from and given back to M/s Index Securities & Research Pvt. Ltd., represented unaccounted money of the appellant, is unjustified, without bringing any adverse material on record. Therefore, such addition cannot be sustained

Summary

Issues Involved:
1. Deletion of addition of ?10,68,00,000/- made by the AO on account of unexplained cash credit.
2. Deletion of addition of ?1.50 crore made by AO on account of unsecured loan from M/s Index Securities & Research Pvt. Ltd.
3. Legal validity of proceedings initiated under section 153A of the Income Tax Act, 1961, in the absence of any search and incriminating material.

Issue-wise Detailed Analysis:

1. Deletion of Addition of ?10,68,00,000/- on Account of Unexplained Cash Credit:

The revenue challenged the deletion of the addition of ?10.68 crore made by the AO on account of unexplained cash credit. The AO had made this addition based on the belief that the companies from whom the loans were taken were Kolkata-based and their existence was in question. The CIT(A) deleted the addition after obtaining a remand report from the AO, noting that the AO had issued enquiry letters under section 133(6) to six out of thirteen companies, and all six companies responded with information about their annual returns, bank statements, and annual accounts. The CIT(A) found that the AO did not conduct further enquiries or bring any adverse material on record to substantiate the addition. The Tribunal upheld the CIT(A)’s decision, noting that the primary onus was discharged by the assessee by providing the necessary documents, and the AO failed to conduct meaningful enquiries or bring any conclusive evidence against the assessee.

2. Deletion of Addition of ?1.50 Crore on Account of Unsecured Loan from M/s Index Securities & Research Pvt. Ltd.:

The revenue also challenged the deletion of the addition of ?1.50 crore made by the AO on account of an unsecured loan from M/s Index Securities & Research Pvt. Ltd. The AO doubted the genuineness of the loan, alleging that it was managed by entry operators. The CIT(A) deleted the addition, noting that the assessee had provided confirmation from the lender, copies of income tax returns, and bank statements. The Tribunal upheld the CIT(A)’s decision, stating that the assessee had discharged its onus by providing the necessary documents, and the AO did not bring any adverse material on record to substantiate the addition.

3. Legal Validity of Proceedings Initiated Under Section 153A of the Income Tax Act, 1961:

The assessee raised additional grounds challenging the legal validity of the proceedings initiated under section 153A, arguing that no search was carried out on the assessee and no incriminating material was found during the search. The Tribunal admitted the additional grounds, noting that they were legal in nature and did not require further investigation of facts. The Tribunal referred to the decision of the Hon'ble Delhi High Court in the case of CIT vs. Kabul Chawla, which held that in the absence of any incriminating material found during the search, no addition can be made under section 153A. However, the Tribunal found that in the present case, there was incriminating material in the form of a statement of disclosure made on unaccounted income by the director of the company, which supported the revenue’s case. Therefore, the Tribunal rejected the assessee’s contention and upheld the validity of the proceedings under section 153A.

Conclusion:

The Tribunal dismissed both the appeal filed by the revenue and the cross-objection filed by the assessee. The Tribunal upheld the CIT(A)’s decision to delete the additions of ?10.68 crore and ?1.50 crore, and found that the proceedings initiated under section 153A were valid in the presence of incriminating material. The order was pronounced in the open court on 27/01/2016.