2019 (10) TMI 878 - AT - Income Tax

Assessment u/s 153A - addition u/s 68 - HELD THAT - Search and seizure action u/s 132(1) was conducted on 17th 18th December, 2014 and the addition made by the Assessing Officer in the unabated assessment completed in pursuance of the search under section 153A of the Act on account of share capital and share premium received during the year under consideration by treating the same as unexplained cash credit was deleted by the ld. CIT(Appeals) on the ground that the same was not based on any incriminating material found during the course of search. It is true that when a search under section 132(1) is conducted, the Assessing Officer gets jurisdiction to issue notice under section 153A for the relevant years and complete the assessments for the said years. It is also true that there is no explicit mention in the language used in section 153A that the addition made under section 153A should be based on the incriminating material found during the course of search. The scope of assessment to be made under section 153A, however, is considered and defined in the various judicial pronouncements. Assessments are classified in two categories, i.e. completed assessment and pending or abated assessment. It is held that if the assessment for the relevant year is pending as on the date of search and it is not completed, the same gets abated and the scope of assessment to be made under section 153A for the said year is wide, which includes assessment of income on the basis of incriminating material found during the course of search as well as the assessment of income, which is the subject matter of regular assessment. On the other hand, if the assessment for the relevant year is not pending as on the date of search, the same is to be regarded as completed assessment and the scope of assessment to be made under section 153A is limited to the assessment of undisclosed income on the basis of incriminating material found during the course of search. This legal position clearly emanates from the various judicial pronouncements cited and relied upon by the assessee in the written submission filed before us. No doubt, there are certain judicial pronouncements cited by the ld. D.R. in his written submission, wherein a contrary view has been taken, which is in favour of the Revenue. However, a consistent view has been taken by the Hon ble Calcutta High Court on this issue in several cases, which is in favour of the assessee. As in the case of DCIT vs.- Salasar Stock Broking Limited 2016 (8) TMI 1131 - CALCUTTA HIGH COURT held that the addition made by the Assessing Officer in the assessment completed under section 153A was beyond the scope in the absence of any incriminating material found during the course of search. Since the assessment for the year under consideration was not pending as on the date of search, there was no abatement and the addition made by the Assessing Officer in the unabated assessment completed under section 153A on account of share capital and share premium amount by treating the same as unexplained cash credit was not sustainable as the same was not made on the basis of any incriminating material found during the course of search. We accordingly uphold the impugned order of the ld. CIT(Appeals) deleting the said addition made by the Assessing Officer and dismiss this appeal of the Revenue.

Summary

Issues Involved:
1. Jurisdiction of Assessing Officer under section 153A.
2. Requirement of incriminating material for additions under section 153A.
3. Validity of additions based on statements and documents not found during the search.
4. Legal precedents and judicial interpretations relevant to section 153A.

Issue-Wise Detailed Analysis:

1. Jurisdiction of Assessing Officer under section 153A:
The Assessing Officer (AO) issued a notice under section 153A following a search and seizure action under section 132(1). The AO's jurisdiction to issue such notice is automatic upon initiation of a search. The AO is mandated to assess or reassess the total income, which includes examining books of accounts or documents that might not have been produced earlier. The AO's power is not restricted to the material found during the search but extends to the assessment of total income, including disclosed and undisclosed items. This interpretation is supported by various judicial precedents, indicating that section 153A encompasses a broad scope for reassessment.

2. Requirement of incriminating material for additions under section 153A:
The primary contention was whether additions under section 153A should be based solely on incriminating material found during the search. The Tribunal noted that judicial pronouncements have classified assessments into two categories: completed and pending or abated assessments. For completed assessments (where no proceedings were pending as on the date of the search), the scope of reassessment under section 153A is limited to undisclosed income based on incriminating material found during the search. This position is supported by several judicial decisions, including those from the Hon'ble Calcutta High Court, which consistently held that additions in such cases must be based on incriminating material.

3. Validity of additions based on statements and documents not found during the search:
The AO made additions based on statements of entry operators and dummy directors recorded by the Investigation Wing, which were not part of the search proceedings against the assessee. The Tribunal found merit in the assessee's contention that these statements, recorded in connection with other cases and subsequently retracted, could not be treated as incriminating material for making additions under section 153A. The Tribunal emphasized that additions must be based on incriminating material found during the search, and in this case, no such material was found.

4. Legal precedents and judicial interpretations relevant to section 153A:
The Tribunal relied on several judicial precedents, including decisions from the Hon'ble Calcutta High Court and the Hon'ble Delhi High Court, which held that additions in search assessments must be based on incriminating material. Notable cases include:
- PCIT-2, Kolkata Vs. Salasar Stock Broking Limited: The Hon'ble Calcutta High Court upheld the Tribunal's decision that the AO had no jurisdiction to reopen concluded cases without incriminating material.
- CIT Vs. Kabul Chawla: The Hon'ble Delhi High Court held that additions under section 153A must be based on incriminating material found during the search.
- PCIT Vs. Kurele Paper Mills Pvt. Ltd.: The Hon'ble Supreme Court dismissed the SLP against the Delhi High Court's decision, which held that no addition under section 68 could be made without incriminating material found during the search.

Conclusion:
The Tribunal upheld the order of the Commissioner of Income Tax (Appeals), which deleted the addition made by the AO under section 68. The Tribunal concluded that since the assessment for the relevant year was not pending as on the date of the search, the addition made by the AO in the unabated assessment under section 153A was not sustainable as it was not based on any incriminating material found during the search. The appeal of the Revenue was dismissed.

Order pronounced in the open Court on September 12, 2019.