2021 (7) TMI 879 - AT - Income Tax

Assessment u/s 153A - share application money received - HELD THAT - As material in respect of investor companies were admittedly found during the course of first search and therefore, it cannot be used against the assessee for making the addition in the assessment proceedings consequent to the second search and therefore, the very basis of addition on account of share application money does not survive. Hence on account of share application money stands deleted and consequential addition of brokerage @. 5% on such amount of share capital also stands deleted. Without prejudice, we have examined the nature of the material found and we find that the same cannot be said to be incriminating. The Hon ble High Court of Delhi in the cases of RRJ Securities 2015 (11) TMI 19 - DELHI HIGH COURT and Index Securities Pvt. Ltd. 2017 (9) TMI 585 - DELHI HIGH COURT and in many other decisions have held that blank signed transfer forms and blank cheque books do not constitute incriminating material and they do not lead to any inference of escapement of income and therefore, cannot under any stretch of imagination be said to be incriminating documents. Therefore the addition in respect of share capital cannot be made for the completed assessment years i. e. AY 2007-08 to 2011-12 in absence of any incriminating material found in search. Addition u/s 68 - As in respect of share capital, the ld. AR repeatedly stated that as far as possible, all the documentary evidences including register of minutes of meeting of shareholders were produced for verification and the copies of the same were also filed. All the documents establishing the genuineness of the transaction including the bank statements, board resolutions, Certificate of Chartered accountants etc. are attached.The assessee has also claimed to have filed evidences relating to the source of the share application money. All these evidences have neither been rebutted nor has any inquiry led to any inference that these are mere paper work and have been found to be bogus. Based on these evidences Ld. CIT (A) has deleted the additions in all the yearas on this score. Under these circumstances, we have no hesitation in holding that both in law and on facts, the above addition is not correct and deserves to be deleted - Decided in favour of assessee. Addition of cash salary under section 69C - Assessee argued that proposed cash was also found during the course of first search and therefore, cannot be put to use for making assessment consequent to the second search and even otherwise, according to the appellant, the document is dumb as it clearly states that the salary was only proposed and never paid - HELD THAT - Looking to the nature of documents, we have no hesitation in holding that based on these documents this expenditure cannot be added as income from undisclosed sources and therefore, no addition can be made. Addition relating to purchase of scrap and unaccounted investment - HELD THAT - These additions have been made on the basis of gate registers, documents from scrap dealers, bilties from transporters, etc. found in search conducted by the Excise Department. There is no reference to any other material found during the search by Income-tax department on the assessee. The only reference and basis of addition were proceedings initiated under the Central Excise Act. Assessee brought to our notice the order of the Principal Commissioner, Central Excise dated 19. 06. 2018 and order of Hon ble Customs, Excise and Service Appellate Tribunal dated 27. 03. 2019 which was received after the order of CIT(Appeal). The assessee got no opportunity to file this order which clearly shows that all the additions made by the Assessing Authority of Excise were deleted by the Principal Commissioner, Central Excise and Customs, Excise and Service Appellate Tribunal. Since the entire additions made by the AO were based on the additions made by the Adjudicating Officer of Excise and the said additions were finally deleted by the Principal Commissioner, Central Excise and Customs, Excise and Service Appellate Tribunal, there is no question of the same addition to be sustained. Hence this addition has also been deleted. The assessee had also sought cross examination of the various persons referred to in Excise order which has not been provided, the addition is also against the principles of natural justice. On this count also, the addition deserves to be deleted. Payment of land at Chhattisgarh - Addition made on the basis of evidence found during the course of survey - HELD THAT - There is nothing to show that the payment was made outside the books of account. Assessee also stated that the transaction pertaining to difference of ₹ 5,56,000 is in respect of purchase of land and has been duly recorded in books and the transaction pertaining to difference of ₹ 732,150 pertains to M/s Prakash Thermal Power Ltd which is a group concern of the assessee company and the amount is duly accounted by it. The Ld. AR for the assessee also stated that theLd. AO has incorrectly totalled the addition to ₹ 23,99,260 instead of ₹ 12,88,150.Therefore, the addition stands deleted and the assessee gets relief. Addition on account of shifting of profits from the steel unit to the power unit - addition based on material found in the first search - HELD THAT - Tax has been paid on book profits and any change in sale price will not impact the book profits.Assessee has paid tax of ₹ 42. 81 crores on book profits of ₹ 251. 89 crores. Even if the allegation of the Ld. AO is believed to be true, even then there will be no change in the tax liability of the Assessee. The book profits will remain unchanged as the profit of power division will reduce but profit of steel division will increase by the same amount. The tax liability as per normal provisions would still be less than tax as per MAT. Assessee submitted the same before the Ld. AO and even filed the computation before and after considering the addition made by the Ld. AO. However the Ld. AO failed to consider the same. CIT (A) has considered this reply and deleted the addition stating that Assessee has paid tax under Mat and no demand is created by AO after reducing deduction under 80IA of act hence no tax benefit is achieved by the Assessee. The facts and submission given above clearly proves that there is no instance to show any shifting of profit and therefore, we delete this addition. The Assessee gets relief of ₹ 76,35,72,743 and ₹ 52,80,20,878 in the AY 2010-11 and AY 2011-12 on this issue.

Summary

Issues Involved:
1. Addition under Section 68 of the Income Tax Act for unexplained cash credits.
2. Addition for unexplained expenditure on account of brokerage.
3. Interpretation of 'total income' under Section 153A.
4. Restrictive interpretation of the scope of assessment under Section 153A.
5. Use of material found during the first search for assessments related to the second search.
6. Addition for salary paid in cash under Section 69C.
7. Addition for investment in purchase and purchase of scrap.
8. Addition for unexplained expenditure in the purchase of land.
9. Addition for shifting of profit from the steel division to the power division.

Detailed Analysis:

1. Addition under Section 68 for Unexplained Cash Credits:
The Revenue challenged the deletion of additions made under Section 68 for unexplained cash credits. The Tribunal noted that the material found during the first search was used to make these additions in the assessment related to the second search. The Tribunal held that since the Assessing Officer (AO) failed to complete the assessment under Section 153A for the first search, the material found during the first search could not be used for the second search's assessments. Consequently, the additions for unexplained cash credits were deleted.

2. Addition for Unexplained Expenditure on Account of Brokerage:
Similar to the unexplained cash credits, the additions for unexplained expenditure on account of brokerage were based on material found during the first search. The Tribunal reiterated that such material could not be used for assessments related to the second search. Therefore, the additions for brokerage were also deleted.

3. Interpretation of 'Total Income' under Section 153A:
The Tribunal addressed the Revenue's contention that the term 'total income' under Section 153A includes both disclosed and undisclosed income. The Tribunal agreed with the assessee's argument that the AO must assess or reassess the total income for six assessment years preceding the year of search, and this process is mandatory. The Tribunal held that the AO's failure to complete the assessment under Section 153A for the first search meant that the material from the first search could not be used for the second search's assessments.

4. Restrictive Interpretation of the Scope of Assessment under Section 153A:
The Tribunal rejected the Revenue's argument that the AO adopted a restrictive interpretation of Section 153A. The Tribunal emphasized that the AO is bound to assess or reassess the total income for six assessment years immediately preceding the year of search. The failure to do so for the first search invalidated the use of material from that search for the second search's assessments.

5. Use of Material Found During the First Search for Assessments Related to the Second Search:
The Tribunal held that the AO's failure to complete the assessment under Section 153A for the first search meant that the material from the first search could not be used for the second search's assessments. The Tribunal emphasized that each search must be treated separately, and the material found in one search cannot be used for another search's assessments.

6. Addition for Salary Paid in Cash under Section 69C:
The Tribunal noted that the evidence for the addition of salary paid in cash was found during the first search. Since the AO did not complete the assessment under Section 153A for the first search, the material from that search could not be used for the second search's assessments. Additionally, the Tribunal found the document to be a "dumb document" as it only contained proposed salary payments and not actual payments. Consequently, the additions for salary paid in cash were deleted.

7. Addition for Investment in Purchase and Purchase of Scrap:
The Tribunal noted that the additions for investment in purchase and purchase of scrap were based on material found during the first search and proceedings initiated under the Central Excise Act. The Tribunal emphasized that the material from the first search could not be used for the second search's assessments. Additionally, the Tribunal noted that the Excise Department had deleted the additions made by the AO. Consequently, the additions for investment in purchase and purchase of scrap were deleted.

8. Addition for Unexplained Expenditure in the Purchase of Land:
The Tribunal noted that the addition for unexplained expenditure in the purchase of land was based on material found during the first search. Since the AO did not complete the assessment under Section 153A for the first search, the material from that search could not be used for the second search's assessments. Consequently, the additions for unexplained expenditure in the purchase of land were deleted.

9. Addition for Shifting of Profit from Steel Division to Power Division:
The Tribunal noted that the addition for shifting of profit from the steel division to the power division was based on material found during the first search. Since the AO did not complete the assessment under Section 153A for the first search, the material from that search could not be used for the second search's assessments. Additionally, the Tribunal found that the assessee had paid tax on book profits, and any change in the sale price would not impact the book profits. Consequently, the additions for shifting of profit were deleted.

Conclusion:
The Tribunal dismissed the Revenue's appeals and allowed the assessee's appeals, holding that the AO's failure to complete the assessment under Section 153A for the first search invalidated the use of material from that search for the second search's assessments. Consequently, all the additions made based on material from the first search were deleted.