2017 (12) TMI 916 - AT - Income Tax

Validity of assessment made u/s. 153(c)/143(3) - proof of incrimination material found in search - Held that - We find that the additions made by the AO are beyond the scope of section 153C of the Income Tax Act, 1961, because no incriminating material or evidence had been found during the course of search so as to doubt the transactions. It was noted that in the entire assessment order, the AO has not referred to any seized material or other material for the year under consideration having being found during the course of search in the case of assessee, leave alone the question of any incriminating material for the year under appeal. - Decided in favour of assessee.

Summary

Issues Involved:
1. Legality of assessment framed under section 153A/143(3) of the Income Tax Act, 1961.
2. Deletion of addition made under section 68 of the Income Tax Act, 1961 by the Assessing Officer (AO) in respect of share application money.
3. Validity of the assessment order passed under section 153C/143(3) of the Income Tax Act, 1961.

Detailed Analysis:

Issue 1: Legality of Assessment under Section 153A/143(3)
The Assessee contested the legality of the assessment framed under section 153A/143(3) following a search operation under section 132, arguing that no incriminating material was found during the search. The Tribunal reviewed the case and noted that the AO made the addition without any incriminating material found during the search. The Tribunal relied on the Supreme Court's decision in Commissioner of Income Tax-III, Pune vs. Sinhgad Technical Educational Society, which held that incriminating material must pertain to the assessment years in question. Additionally, the Delhi High Court in Commissioner of Income Tax vs. Kabul Chawla and Principal Commissioner of Income Tax vs. Index Securities Ltd. established that additions should be based on evidence found during the search. Consequently, the Tribunal quashed the assessment order under section 153C/143(3), deeming it beyond the scope of jurisdiction as no incriminating material was found.

Issue 2: Deletion of Addition Made Under Section 68
The Revenue challenged the CIT(A)'s deletion of an addition of ?44,50,000/- made under section 68 concerning share application money. The Tribunal, however, did not find any reference to seized material or other incriminating evidence in the AO's assessment order. The Tribunal concluded that the AO's action was based on conjectures and surmises, making the addition unsustainable in law. The Tribunal upheld the CIT(A)'s decision to delete the addition, aligning with the established legal principle that additions must be based on incriminating material found during the search.

Issue 3: Validity of Assessment Order under Section 153C/143(3)
The Tribunal addressed the validity of the assessment order under section 153C/143(3). The Tribunal found that the AO's additions were not based on any incriminating material found during the search. The Tribunal cited the Supreme Court's decision in Commissioner of Income Tax-III, Pune vs. Sinhgad Technical Educational Society and the Delhi High Court's rulings in Commissioner of Income Tax vs. Kabul Chawla and Principal Commissioner of Income Tax vs. Index Securities Ltd., which emphasized the necessity of incriminating material for making additions under section 153C. The Tribunal quashed the assessment order, ruling it invalid and beyond the scope of the AO's jurisdiction.

Conclusion:
The Tribunal allowed the Assessee's Cross Objections, quashing the assessment orders for the relevant assessment years due to the absence of incriminating material. Consequently, the Revenue's appeals were dismissed as infructuous. The Tribunal's decision reinforced the legal requirement that additions under section 153C must be based on incriminating material found during the search, adhering to established judicial precedents. The order was pronounced in the Open Court on 07/12/2017.