2020 (10) TMI 621 - AT - Income Tax

Assessment u/s 153A - sham loss on sale of shares - whether impugned additions/ disallowances made dehors the incriminating material is permissible as per the scheme of assessment embodied in S. 153A? - CIT(A) quashed the additions made towards disallowance of loss on sale of shares alleged to sham by AO on the ground that such additions are not sustainable in the absence of any incriminating material found in the course of search - HELD THAT - Assessment order is silent towards presence or otherwise of incriminating material for indulging in impugned additions as sham loss on sale of shares. The extract of the remand report from the AO also does not answer the presence or otherwise of such incriminating materials in connection with the impugned additions/disallowance. No averment in the assessment order either on the point whether the assessment stood concluded on the date of search or not. In the absence of discussion on these aspects, it is a difficult proposition to determine the issue either way which is dependent on the facts in question. CIT(A) has mechanically applied the law evolved by judicial precedents on contours of S. 153A in an abstract and generic manner. CIT(A) was under bounden duty to make suitable inquiry to find the presence or otherwise of the incriminating material and should simply ought not to have brushed aside the additions and determine the viability of additions/ disallowance upon a vague and non-descript remand report where pertinent points raised by the CIT(A) remains unanswered. The findings of CIT(A), in our view, lacks comprehension. CIT(A) ought to have repeated the inquiry on incriminating material from the AO where the remand report allegedly did not cogently address the pertaining issue raised by the CIT(A) himself at the first instance. No such inquiry has been made as enjoined in law towards corroboration of assertions made by AO in support of its challenge to jurisdiction for additions. Assessee himself has discredited the entries pertaining the purchase and sale transactions of shares in its books. The submissions remains un-repudiated to our understanding. It is thus observed that the assessee has come forward to make an inexplicable and strange admission that certain profits arising on sale of shares have been introduced in the books unilaterally as book / paper entries without any supporting material. This assertion has a direct impact to the impugned loss in controversy. Ostensibly, the presence of incriminating material can not be ordinarily seen in isolation but has to be appreciated in conjunction with books maintained by the Assessee Co. Loss claimed ₹ 5 Crores on sale of ACFSL shares in controversy is stated to be wrongly claimed in books as derivative transaction by the assessee and consequently characterized as business loss as per the scheme of the Act. On the contrary, the loss arising on ordinary share transaction, needs to be tested on the touchstone of deeming fiction embedded in Explanation to Section 73 of the Act to determine whether the impugned loss is speculative in nature and thus to be treated on a different tangent. As per the averments of the Assessee by way of it submissions, the share trading transactions have the attributes of ordinary transactions in contrast to derivative transactions enjoying a different legal status in view of exceptions carved out in S. 43(5) of the Act. Hence, the issue needs to be examined by the CIT(A) from this perspective as well which may call for some factual verifications.CIT(A) ought to have examined these crucial aspects with a degree of objectivity by making inquiries and verification in this regard in accordance with law. We thus see obscure merits in the first appellate order in challenge. Appeal of the Revenue is allowed for statistical purposes.

Issues Involved:
1. Interpretation of Section 153A of the Income Tax Act, 1961.
2. Validity of additions made by the Assessing Officer (AO) without incriminating material.
3. Deletion of addition of ?5,00,00,000/- on account of loss on sale of shares.
4. Consideration of unilateral book/paper entries in audited accounts.

Detailed Analysis:

1. Interpretation of Section 153A of the Income Tax Act, 1961:
The primary issue revolves around the interpretation of Section 153A of the Income Tax Act, 1961, which mandates the AO to assess or reassess the total income of six assessment years immediately preceding the year of search. The Revenue argued that the CIT(A) erred in restricting the assessment to only incriminating materials found during the search. The Tribunal noted that the jurisdiction to invoke Section 153A was not in challenge due to the search action. However, the question was whether additions could be made without incriminating material.

2. Validity of Additions Made by the Assessing Officer (AO) Without Incriminating Material:
The CIT(A) deleted the addition of ?5,00,00,000/- made by the AO, stating that no incriminating material was found during the search. The Tribunal observed that the assessment order was silent on the presence of incriminating material and that the remand report from the AO did not address this issue. The Tribunal emphasized that the CIT(A) should have made a suitable inquiry to determine the presence of incriminating material, as the appellate authority possesses co-terminus powers with the AO.

3. Deletion of Addition of ?5,00,00,000/- on Account of Loss on Sale of Shares:
The AO disallowed the loss claimed on the sale of shares of Amrapali Capital & Finance Services Ltd. (ACFSL), considering it a sham transaction. The CIT(A) quashed this addition, citing the absence of incriminating material. The Tribunal noted that the assessee admitted that the purchase and sale transactions were mere book entries without actual transactions. This admission raised concerns about the genuineness of the transactions and the presence of incriminating material, necessitating further inquiry by the CIT(A).

4. Consideration of Unilateral Book/Paper Entries in Audited Accounts:
The assessee admitted that the entries of purchase and sale in the audited accounts were unilateral book entries without actual transactions. This admission was significant as it suggested that the transactions recorded in the books were not genuine, impacting the assessment under Section 153A. The Tribunal highlighted that the CIT(A) should have examined these crucial aspects objectively and made necessary inquiries to determine the validity of the additions.

Conclusion:
The Tribunal set aside the appellate order passed by the CIT(A) and remitted the matter back for reconsideration. The CIT(A) was directed to re-examine the issue, make necessary inquiries, and verify the presence of incriminating material. The Tribunal emphasized the duty of the appellate authority to ensure effective inquiry and determine the correct taxability of the issue. The appeal of the Revenue was allowed for statistical purposes, and the matter was remanded back to the CIT(A) for a fresh examination in accordance with the law.

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