2021 (7) TMI 447 - AT - Income Tax

Assessment u/s 153A - incriminating material found during the course of search or not? - HELD THAT - Considering the latest judgement in the case of Pr. CIT Ors. Vs. Meeta Gutgutia 2017 (5) TMI 1224 - DELHI HIGH COURT come to the conclusion that since the assessment orders in question were concluded and non-abated assessments no addition can be made in the assessment proceedings u/s 153A of the act unless there is any incriminating material found during the course of search. We find no inconsistency in the finding of Ld. CIT(A) quashing the assessment proceedings u/s 153A of the Act since the additions were not made on the basis of any incriminating material found during the course of search. - Decided in favour of assessee. Addition for the pay-in from NBOT - HELD THAT - So far as first contention of assessee that profit and loss has been shown by the respective clients in their Income Tax returns and the transactions are confirmed by them, we do not find any merit and the same is not accepted at our end because when any new client is added by a member of NCDX/NBOT, complete KYC is done and all the documentary evidence in support of identity, PAN No., Address are taken. Details of bank account are also available. Yearly confirmation also taken from the clients since the accounts of the members of such exchange are subject to audit by the exchange also. Second contention of assessee that Ld. AO should have taken the figures of Pay-in and pay-out from NBOT, in entirety, certainly has a merit in it. When the Ld. Assessing Officer was not able to lay hand on the documentary evidence to satisfy himself about the fact that profit and loss earned by various clients are genuine and have been shown in their regular return of income, he resorted to complete the assessment on the basis of the figures of pay-in from NBOT. AO however did not considered the figure of pay-out. This action of the Ld. Assessing Officer was not justified as he cannot pick and choose the figures at his/her pleasure. Once it was decided to make the addition on the basis of gross transactions with NBOT then Ld. Assessing Officer was bound to consider both the figures of pay-in and pay-out. Cumulative amounts for the years under appeal are negative and thus, no addition was called for A.Ys. 2007-08 2008-09 based on the transactions with NBOT as observed in the assessment order. Similar finding has been given by the Ld. CIT(A) in this regard which thus needs no interference and the same stands confirmed. Accordingly grounds of appeal raised by the Revenue dismissed.

Summary

Issues Involved:
1. Legality of issuing notice under Section 153A of the Income Tax Act when no incriminating material was found during the search.
2. Justification of additions made by the Assessing Officer on account of profits earned by clients in NBOT pro-account.
3. Validity of the Assessing Officer's approach in considering pay-in amounts without corresponding pay-out amounts.

Issue-wise Detailed Analysis:

1. Legality of Issuing Notice under Section 153A:
The core legal issue raised by the assessee was the validity of the issuance of notice under Section 153A and the subsequent assessments when no incriminating material was found during the search. The Tribunal noted that the search was conducted on 02.05.2008, and the original returns for the assessment years 2005-06 and 2006-07 were filed before the due date without being selected for scrutiny. The Tribunal referenced the Delhi High Court's decision in CIT vs. Kabil Chawla, which stated that in the absence of incriminating material, completed assessments could not be reopened under Section 153A. Consequently, for the assessment years 2005-06 and 2006-07, the Tribunal quashed the assessments as no incriminating material was found, making the additions invalid. However, for the assessment years 2007-08 and 2008-09, the Tribunal upheld the assessments since these were abated assessments, and the requirement of incriminating material was dispensed with.

2. Justification of Additions Made by the Assessing Officer:
The revenue appealed against the CIT(A)'s deletion of additions made by the Assessing Officer for the assessment years 2007-08 and 2008-09. The Assessing Officer had added profits earned by clients in the NBOT pro-account, amounting to ?6,85,53,750 for 2007-08 and ?4,99,82,340 for 2008-09. The Tribunal noted that the Assessing Officer's approach was flawed as it only considered the pay-in amounts from NBOT without accounting for the pay-out amounts. The Tribunal emphasized that both pay-in and pay-out figures should be considered to determine the net result accurately. Since the cumulative amounts for the years under appeal were negative, the Tribunal concluded that no additions were warranted based on the transactions with NBOT.

3. Validity of the Assessing Officer's Approach:
The Tribunal found merit in the assessee's argument that the Assessing Officer should have considered both pay-in and pay-out amounts from NBOT. For the assessment year 2007-08, the pay-in amount was ?68,553,750, while the pay-out amount was ?87,622,500, resulting in a net loss. Similarly, for the assessment year 2008-09, the pay-in amount was ?49,982,340, and the pay-out amount was ?37,933,650. The Tribunal held that the Assessing Officer's failure to consider pay-out figures was unjustified and that the net result should be computed based on cumulative credit/debit amounts. The Tribunal confirmed the CIT(A)'s finding that no addition was called for based on the NBOT transactions and dismissed the revenue's appeals for the assessment years 2007-08 and 2008-09.

Conclusion:
The Tribunal allowed the assessee's cross objections for the assessment years 2005-06 and 2006-07, quashing the assessments due to the absence of incriminating material. For the assessment years 2007-08 and 2008-09, the Tribunal dismissed the revenue's appeals, confirming that no additions were warranted based on the net results of NBOT transactions. The Tribunal's decision emphasized the importance of considering both pay-in and pay-out amounts to determine the accurate financial outcome.