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2019 (5) TMI 409 - AT - Income TaxAssessment u/s 153A - addition u/s 68 - initiation of search action u/s 132 - no incriminating document/material was found during the course of search - assessment was not abated at the time of initiation of search action u/s 132 - HELD THAT - We find the assessee in the instant case filed the original return of income on 25th September, 2009 for the impugned assessment year. The return was duly accepted and intimation u/s 143(1) of the Act was issued. No assessment or reassessment was completed u/s 143(3) or 148 and no notice u/s 143(2) was issued thereafter or any other proceedings have been commenced to disturb the said return of income. Therefore, it has attained finality prior to the date of search on 18th June, 2013. It is an admitted fact that in the search action u/s 132, no incriminating document/material was found and seized at the time of search and also subsequently. Since at the time of initiation of search action u/s 132 the assessment or reassessment was not abated and the additions made in the assessment order passed u/s 153A dated 29th March, 2016 are not based on any incriminating document/material seized, therefore, in view of the decision in the case of CIT vs. Kabul Chawla 2015 (9) TMI 80 - DELHI HIGH COURT , the addition made by the Assessing Officer cannot be sustained. Thus in absence of any incriminating material found during the course of search, no addition can be made u/s 153A of the Act in case of a non-abated assessment. So far as the loose papers seized and inventorised it is an admitted fact that these papers do not belong to the assessee and these papers belong to the six investor companies of the assessee. Further, these are all statutory combined registers which were required to be maintained as per Companies Act, 1956 and the transactions reflected in the registers pertained to the share issue and transfer in relation to those six investor companies of the assessee. Therefore, this cannot be called as incriminating material. - Decided against revenue.
Issues Involved:
1. Validity of additions made under Section 68 and Section 69C of the Income Tax Act. 2. Applicability of incriminating material found during the search under Section 153A. 3. Interpretation of the term "total income" under Section 153A. 4. Jurisdictional High Court's decision in the case of Kabul Chawla and its applicability. Issue-wise Detailed Analysis: 1. Validity of Additions under Section 68 and Section 69C: The Assessing Officer (AO) made additions of ?20.85 crores under Section 68 for unexplained cash credits and ?10,42,500 under Section 69C for unexplained expenses, based on the observation that the assessee received share capital and premium from companies identified as paper companies. The AO noted that these companies had minimal business activities and were used for providing accommodation entries. The assessee provided extensive documentation to substantiate the legitimacy of the transactions, including share certificates, bank statements, and income tax returns of the investor companies. Despite this, the AO was not satisfied and proceeded with the additions. 2. Applicability of Incriminating Material under Section 153A: The CIT(A) deleted the additions on the grounds that no incriminating documents were found during the search under Section 132, and the assessment was not abated at the time of the search. The CIT(A) relied on the Delhi High Court's decision in CIT vs. Kabul Chawla, which held that in the absence of incriminating material, no addition can be made under Section 153A when the assessment is not abated. 3. Interpretation of "Total Income" under Section 153A: The Revenue argued that the term "total income" under Section 153A includes both income unearthed during the search and any other income. They cited the decision of the Karnataka High Court in Canara Housing Development Company vs. DCIT to support their stance. However, the Tribunal upheld the CIT(A)'s view, which followed the Delhi High Court's interpretation that "total income" should be based on incriminating material found during the search. 4. Jurisdictional High Court's Decision in Kabul Chawla: The Revenue contended that the decision in Kabul Chawla should not be relied upon as an SLP against it was pending in the Supreme Court. However, the Tribunal noted that the Delhi High Court's decision in Kabul Chawla was still the prevailing law and had to be followed unless overturned by the Supreme Court. The Tribunal also referenced the Delhi High Court's decision in Pr. CIT vs. Dharampal Premchand Ltd., which reiterated that incriminating material is essential for additions under Section 153A. Conclusion: The Tribunal upheld the CIT(A)'s order, which deleted the additions made by the AO under Sections 68 and 69C, on the grounds that no incriminating material was found during the search, and the assessment was not abated. The Tribunal dismissed the Revenue's appeals and the cross-objections filed by the assessees as not pressed. The decision was pronounced in open court on 30.04.2019.
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