2020 (12) TMI 256 - AT - Income Tax

Assessment u/s 153A - Addition u/s 68 - HELD THAT - Since no incriminating material was found as a result of the search conducted on the assessee, therefore, the notice issued for initiation of proceedings u/s 153A and the assessment framed subsequently are without jurisdiction and deserves to be quashed. We hold and direct accordingly. Since the assessee succeeds on this first legal ground, therefore, the validity of the assessment in absence of any proper approval u/s 153D does not require any separate adjudication being academic in nature. Similarly, since the assessee succeeds on the first legal ground, the order of the CIT(A) deleting the addition on merit also become academic in nature and does not require any adjudication. The CO filed by the assessee is accordingly allowed and the appeal filed by the Revenue is dismissed. Since the additions in the other appeals also are not based on any incriminating material found during the course of search and since we have already held that statements recorded u/s 132(4) are not incriminating in nature, therefore, the addition made by the AO being not based on any incriminating material, the addition cannot be sustained in the orders passed u/s 153A/143(3) of the Act. - Decided in favour of assessee.

Issues Involved:
1. Assumption of jurisdiction under Section 153A of the Income Tax Act.
2. Validity of additions made under Section 68 of the Income Tax Act.
3. Validity of approval under Section 153D of the Income Tax Act.
4. Deletion of additions on merits by the CIT(A).

Detailed Analysis:

1. Assumption of Jurisdiction under Section 153A:
The primary issue was whether the Assessing Officer (AO) validly assumed jurisdiction under Section 153A when no incriminating material was found during the search. The Tribunal noted that the original assessments for the relevant years were completed and not pending on the date of the search. The additions made by the AO were based on post-search inquiries and statements recorded under Section 132(4), which do not constitute incriminating material. The Tribunal cited multiple precedents, including the Delhi High Court's rulings in CIT vs. Kabul Chawla and CIT vs. Meeta Gutgutia, establishing that completed assessments can only be disturbed based on incriminating material found during the search. Consequently, the Tribunal held that the assumption of jurisdiction under Section 153A was invalid.

2. Validity of Additions Made under Section 68:
The AO had made additions under Section 68, treating the share capital and premium received by the assessee as unexplained cash credits. The AO's conclusion was based on the inability of the assessee to produce the directors of the investor companies and the meager income returned by these companies. The CIT(A) deleted these additions, noting that the assessee had provided substantial evidence, including PAN details, bank statements, and income tax returns of the investor companies, thereby discharging its burden under Section 68. The Tribunal upheld the CIT(A)'s decision, emphasizing that the AO's reliance on post-search inquiries and statements without corroborating incriminating material was insufficient to justify the additions.

3. Validity of Approval under Section 153D:
The assessee challenged the validity of the assessment orders on the grounds that the approval under Section 153D was granted mechanically without application of mind. The Tribunal observed that the approval process under Section 153D requires due application of mind by the higher authorities. However, since the Tribunal already found the assumption of jurisdiction under Section 153A invalid, it did not delve into this issue separately, rendering it academic.

4. Deletion of Additions on Merits by the CIT(A):
On merits, the CIT(A) had deleted the additions made by the AO, holding that the assessee had satisfactorily explained the identity and creditworthiness of the investor companies and the genuineness of the transactions. The Tribunal supported this view, noting that the AO had failed to bring any specific incriminating evidence to substantiate the additions. The Tribunal referenced several judicial precedents, including the Supreme Court's ruling in CIT vs. Lovely Exports Pvt. Ltd., which supports the deletion of such additions when the assessee has discharged its initial burden of proof.

Conclusion:
The Tribunal quashed the assessments framed under Section 153A for the relevant years, holding that the additions made by the AO were not based on any incriminating material found during the search. The Tribunal upheld the CIT(A)'s deletion of the additions on merits and dismissed the Revenue's appeals. The Tribunal's decision was consistent with established legal principles regarding the scope of Section 153A and the evidentiary requirements under Section 68.

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