2018 (1) TMI 1032 - AT - Income Tax

Assessment u/s 153A - addition u/s 68 - Held that - A.O. made the addition under section 68 of the I.T. Act only on the basis of facts already on record which has also been considered in original assessment proceedings under section 143(3) of the I.T. Act and claim of assessee has been accepted by the A.O. prior to the search. Therefore, no assessment was pending against the assessee on the date of search. The completed assessments can be interfered with by the A.O. while making assessment under section 153A only on the basis of some incriminating material unearthed during the course of search which was not produced or not already disclosed or made known in the course of original assessment. However, the department has failed to produce any material to justify the addition made in assessment under section 153A under section 68 of the I.T. Act. Invocation of section 153A by the A.O. for assessment year under appeal was without any legal basis as there were no incriminating material found in search for assessment year under appeal. The issue is therefore, covered in favour of the assessee by Judgments of the jurisdictional High Court in the case of Kabul Chawla 2015 (9) TMI 80 - DELHI HIGH COURT and Meeta Gutgutia (2017 (5) TMI 1224 - DELHI HIGH COURT) - Decided in favour of assessee. Addition u/s 68 - assessee produced sufficient documentary evidence before A.O. to prove the ingredients of Section 68 of the I.T. Act. The A.O. however, did not make any further enquiry on the documents filed by the assessee. The A.O. thus, failed to conduct scrutiny of the documents at assessment stage and merely suspected the transaction between the investor company and the assessee because investor was a foreign entity established in Mauritius. Even the reply received from Mauritius Revenue Authorities proved the identity of the investor, its creditworthiness and genuineness of the transaction. It is not reported if any, cash was found deposited in the account of the investor before making investment in assessee company - as assessee discharged its initial onus to prove the identity of the investor company, its creditworthiness and genuineness of the transaction. The material on record clearly support the explanation of assessee that not only in assessment year under appeal but in earlier years also, M/s. STL made investment in assessee company through banking channel supported by the documentary evidence. The Ld. CIT(A) on proper appreciation of the evidence before him, correctly deleted the addition - Decided in favour of assessee Addition u/s 14A - Held that - Justification to interfere with the orders of the Ld. CIT(A) in deleting the substantial addition under section 14A because A.O. did not record satisfaction under section 14A of the I.T. Act because assessee pleaded that it did not incur any expenditure to earn exempt income. The A.O. re-stated addition made in the original assessment under section 143(3). As per the order of the Ld. CIT(A), assessee has already suo moto disallowed part amount. It was also found that assessee used its own funds for making investments. The Ld. CIT(A), therefore, correctly deleted the substantial additions Disallowance u/s 37(1) on the penalty under VAT Act - Held that - Assessee did not make any claim of deduction in the P & L A/c. Therefore, it was correctly deleted by the Ld. CIT(A). We may also note here that both these additions are part of the regular books of account which were already disclosed to the Revenue in the original return of income and A.O. has accepted the same. No assessments were pending prior to the date of search and assessments were already completed. The assessments are therefore, illegal and bad in law under section 153A of the I.T. Act. The additions have already been rightly deleted by the Ld. CIT(A) - Decided in favour of assessee

Summary

Issues Involved:
1. Legality of the assessment order under section 153A of the I.T. Act.
2. Addition under section 68 of the I.T. Act for unexplained cash credit.
3. Violation of Rule 46A of the I.T. Rules.
4. Application of section 56(2)(viib) of the I.T. Act.
5. Disallowance under section 14A of the I.T. Act.
6. Disallowance under section 37(1) of the I.T. Act for VAT penalty.

Detailed Analysis:

1. Legality of the Assessment Order under Section 153A:
The assessee contended that the assessment order under section 153A is illegal as no incriminating material was found during the search. The original assessment was completed under section 143(3) before the search, and no addition was made under section 68 regarding share capital/share premium. The Hon'ble Delhi High Court in CIT vs. Kabul Chawla held that completed assessments can be interfered with only on the basis of incriminating material found during the search. The Tribunal admitted the additional ground of the cross-objection and found that the invocation of section 153A was without legal basis as no incriminating material was found during the search.

2. Addition under Section 68 for Unexplained Cash Credit:
The A.O. made an addition of ?3,57,80,000 under section 68, considering it unexplained cash credit. The assessee provided detailed evidence to prove the identity, creditworthiness, and genuineness of the transactions, including bank statements, Foreign Inward Remittance Certificates, and confirmations from the investor. The CIT(A) deleted the addition, noting that the share capital/premium was already assessed in the original assessment and no incriminating material was found during the search. The Tribunal upheld the CIT(A)'s decision, citing that the assessee had discharged its onus of proving the identity and creditworthiness of the investors and the genuineness of the transactions.

3. Violation of Rule 46A:
The Revenue argued that the CIT(A) admitted additional evidence without confronting the A.O., violating Rule 46A. However, the Tribunal found no substantial point highlighting any additional evidence considered at the appellate stage that was not submitted before the A.O. at the assessment stage. Therefore, no violation of Rule 46A was found.

4. Application of Section 56(2)(viib):
The A.O. referred to section 56(2)(viib) but did not make any addition under this provision. The CIT(A) noted that the provision was notified to come into effect from A.Y. 2013-14 and was not applicable to the assessment year under appeal. The Tribunal agreed, stating that there were no provisions prior to this to govern share premiums and upheld the CIT(A)'s decision.

5. Disallowance under Section 14A:
In some cases, the A.O. made disallowances under section 14A. The CIT(A) found that the assessee did not incur any expenditure to earn exempt income, and the A.O. did not record satisfaction as required by law. The Tribunal upheld the CIT(A)'s decision to delete the substantial additions, noting that the assessee used its own funds for making investments.

6. Disallowance under Section 37(1) for VAT Penalty:
In some cases, the A.O. disallowed VAT penalties under section 37(1). The assessee contended that it did not claim a deduction for VAT penalties in the profit and loss account. The CIT(A) deleted the addition, and the Tribunal upheld this decision, finding no justification to interfere.

Conclusion:
The Tribunal dismissed all departmental appeals and allowed all cross objections of the assessee. The assessments under section 153A were deemed illegal and bad in law as no incriminating material was found during the search. The additions under section 68 and disallowances under sections 14A and 37(1) were rightly deleted by the CIT(A).