2020 (3) TMI 112 - AT - Income Tax

Additions u/s 153A - no incriminating material found during the course of search by the searched team and the addition is not on the basis of any incriminating material, which has been challenged by the assessee by way of cross objections - HELD THAT - There is no reference of any incriminating material on record. It has been observed by the CIT(A) that the additions made by the AO, has been recorded in the books of accounts, therefore, he deleted the addition as per Section 292C - it cannot be said that whatever the addition made by the AO was already recorded in the books of accounts. There is no any whisper in the assessment order that there was any undisclosed materials discovered by the search team. The assessee has filed return u/s.139(1) of the Act on 29.09.2009 and the search was took place on 16.01.2014 and 25.02.2014. therefore, it would be treated as unabated assessment as no assessment was pending before the AO. Therefore, without referring to any incriminating material found during the course of search, the addition cannot be made. CIT(A) relying upon the decisions of the Hon ble High Court of Kerala in the case of E.N.Gopakumar Vs. CIT 2016 (11) TMI 72 - KERALA HIGH COURT and case of CIT Vs. Raj Kumar Arora 2014 (10) TMI 255 - ALLAHABAD HIGH COURT has held that even if there is no incriminating material, the AO is empowered to make additions in an assessment framed u/s.153A of the Act. We find that none of the decision relied upon by either of the parties are of jurisdictional High Court. It is a well settled position of law that when there are conflicting decisions of High Courts none of which is the jurisdictional High Court, then the decision favouring the assessee should be followed. For this, we derive support from the decision in the case of CIT vs. Vegetable Products Ltd. 1973 (1) TMI 1 - SUPREME COURT - Assessment made u/s.153A of the Act for an assessment year for which assessment has not been abated and even no incriminating material found during the course of search, is unsustainable in the eyes of law. As per the decision of Hon ble Delhi High Court in the case of Kabul Chawla, 2015 (9) TMI 80 - DELHI HIGH COURT completed assessments can be interfered with by the Assessing Officer while making the assessment under section 153A of the Act only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment. Undisputedly, in the instant case, the assessment for the assessment years in question have already been completed on the date of search and the AO has not referred to any incriminating material found during the course of search in the assessment order. Nothing is found contrary to the stated position of the assessee, therefore, the assessment framed u/s.153A is not sustainable - we quash the orders of both the authorities below and held that without referring any incriminating material by the AO in the assessment order for the years under consideration, stated to be unearthed during the course of search, framing the assessment under section 153A of the Act, is void ab initio. Thus, the legal ground raised by the assessee in both the cross objections is allowed.

Summary

Issues Involved:
1. Condonation of delay in filing the appeal.
2. Validity of assessments under Section 153A without incriminating material.
3. Addition on account of share capital.
4. Addition on account of negative cash balance.

Detailed Analysis:

1. Condonation of Delay in Filing the Appeal:
The Revenue's appeal for AY 2009-2010 was barred by 22 days. The Tribunal examined the application for condonation of delay and found sufficient reason for the delay. The assessee did not object to the condonation. Consequently, the Tribunal condoned the delay and proceeded to hear both the appeals along with the cross objections.

2. Validity of Assessments under Section 153A without Incriminating Material:
The primary legal issue raised by the assessee in their cross objections was that no incriminating material was found during the search, and hence, no additions could be made for the unabated years. The Tribunal noted that the assessments for AY 2009-2010 and 2010-2011 were completed before the search, and no incriminating material was found during the search to justify the additions. The Tribunal cited several judicial precedents, including the decisions of the Hon'ble Delhi High Court in the case of Kabul Chawla and the Hon'ble Supreme Court in the case of CIT vs. Vegetable Products Ltd., which support the view that in the absence of incriminating material, completed assessments cannot be disturbed. The Tribunal concluded that the assessments under Section 153A were not valid without incriminating material and quashed the assessments for both years.

3. Addition on Account of Share Capital:
The Revenue challenged the deletion of additions made by the AO on account of unexplained share capital. The AO had made additions based on the assumption that the share capital was bogus, citing reasons such as non-availability of share application forms, discrepancies in incorporation certificates, and non-receipt of replies to verification letters. The CIT(A) deleted the additions, noting that the assessee had provided sufficient documentary evidence, including share application forms, ROC details, and bank statements, to prove the identity, creditworthiness, and genuineness of the share applicants. The Tribunal upheld the CIT(A)'s decision, emphasizing that the additions were not based on any incriminating material found during the search. The Tribunal also referred to Section 292C, which presumes the contents of seized documents to be true unless proven otherwise.

4. Addition on Account of Negative Cash Balance:
The Revenue also challenged the deletion of additions made by the AO on account of negative cash balance. The AO had added the negative cash balances found in the books of the assessee and other group concerns, despite the assessee's claim that these were due to clerical errors and inter-company adjustments. The assessee had offered additional income in the hands of Bajrang Kumar Agarwal to cover the negative cash balances. The CIT(A) deleted the additions, noting that the negative cash balances had already been disclosed and taxed in the hands of Bajrang Kumar Agarwal. The Tribunal upheld the CIT(A)'s decision, agreeing that the disclosure covered the negative cash balances and that the AO's approach of summing up individual negative peaks was incorrect.

Conclusion:
The Tribunal allowed the cross objections filed by the assessee on the legal ground that the assessments under Section 153A were invalid without incriminating material. Consequently, the Tribunal quashed the assessments for AY 2009-2010 and 2010-2011 and dismissed the Revenue's appeals.