2018 (9) TMI 417 - AT - Income Tax

Addition made towards share application money - assessments u/s 153A - unabated / concluded assessment - whether the addition could be framed u/s 153A in respect of a concluded proceeding without the existence of any incriminating materials found in the course of search? - Held that - It is not in dispute that the assessment for the Asst Year 2010-11 was originally completed u/s 143(1) and the time limit for issuance of notice u/s 143(2) of the Act had expired and hence it falls under concluded proceeding as on the date of search. The legislature does not differentiate whether the assessments originally were framed u/s 143(1) or 143(3) or 147. Hence unless there is any incriminating material found during the course of search relatable to such concluded year, the statute does not confer any power on the AO to disturb the findings given thereon and income determined thereon, as finality had already been reached thereon, and such proceeding was not pending on the date of search to get itself abated. In respect of unabated assessments, the legislature had conferred powers on the AO to just follow the assessments already concluded unless there is an incriminating material found in the search to disturb the said concluded assessment. In our considered opinion, this would be the correct understanding of the provisions of section 153A as otherwise, the necessity of bifurcation of abated and unabated assessments in section 153A would become redundant and would lose its relevance. Hence the arguments advanced by the ld DR in this regard deserves to be dismissed. As there was absolutely no incriminating material found during the course of search in the instant case with regard to the issue of share capital, share premium except understanding the discovery of modus operandi of raising bogus share capital based on the certain statements recorded from entry operators in some cases in West Bengal. Since the issue is addressed on preliminary ground of absence of incriminating materials, we refrain to give our findings on the merits of the addition u/s 68 of the Act for the Asst Year 2010-11 - Decided in favour of assessee.

Issues Involved:
1. Whether the addition made towards share application money of ?3,75,00,000 was justified in the absence of incriminating material found during the search.

Issue-wise Detailed Analysis:

1. Justification of Addition Towards Share Application Money:
The primary issue in this appeal was whether the Commissioner of Income Tax (Appeals) [CIT(A)] was justified in confirming the addition of ?3,75,00,000 towards share application money in the absence of incriminating material found during the search.

Background:
The assessee, a company involved in manufacturing and trading of cotton printed sarees, filed its return of income for the Assessment Year (AY) 2010-11 on 19.09.2010, declaring a total income of ?77,22,550/-. A search and seizure operation was conducted under section 132 of the Income Tax Act, 1961 at the assessee's registered office on 15.12.2015. Following the search, a notice under section 153A was issued, and the assessee filed its return of income declaring the same total income. The assessee contended that since the assessment for AY 2010-11 was concluded and no incriminating material was found during the search, the originally assessed income should not be disturbed.

Details of Share Application Money:
The assessee received share application money from various companies totaling ?3,75,00,000 during the financial year 2009-10. The details of the companies and amounts were provided, showing that each company applied for shares at a premium.

Arguments by Assessee:
The assessee argued that no incriminating material was found during the search regarding the share capital and share application money. The assessee provided comprehensive details to support the receipt of share capital, including names, addresses, PANs, confirmation letters, ITR acknowledgements, balance sheets, and bank statements of the share applicants. The assessee also justified the premium by citing its brand value and consistent increase in turnover and profits.

Assessment by AO:
The Assessing Officer (AO) did not accept the assessee's contentions and framed the assessment under section 153A/143(3), making an addition of ?3,75,00,000 under section 68 on account of unexplained cash credit, arguing that section 153A assessments allow for reassessment irrespective of incriminating materials found during the search.

Appeal to CIT(A):
The CIT(A) confirmed the addition, stating that the addition was based on the discovery of the modus operandi of obtaining bogus share capital during the search proceedings. The CIT(A) upheld the addition on merits under section 68 as well.

Tribunal's Analysis:
The Tribunal addressed the preliminary issue of whether additions could be made under section 153A in respect of a concluded proceeding without incriminating material found during the search. It noted that the assessment for AY 2010-11 was originally completed under section 143(1), and the time limit for issuing a notice under section 143(2) had expired, making it a concluded proceeding. The Tribunal held that unless incriminating material was found during the search, the AO could not disturb the concluded assessment.

The Tribunal referred to various judicial precedents, including CIT vs Veerprabhu Marketing Ltd, CIT vs Kabul Chawla, and CIT vs Continental Warehousing Corporation, which supported the view that concluded assessments could only be interfered with if incriminating material was found during the search.

Conclusion:
The Tribunal concluded that the addition made under section 68 on account of share application money was not justified in the absence of incriminating material found during the search. It directed the deletion of the addition of ?3,75,00,000 and allowed the appeal of the assessee.

Final Order:
The appeal of the assessee was allowed, and the addition made by the AO was deleted.

Order Pronounced:
The order was pronounced in the Court on 05.09.2018.

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