2022 (4) TMI 491 - AT - Income Tax

Assessment under section 153A - Addition based on suo-moto disclosure made by the assessee before the ITSC u/s. 245D(1) - addition made by the AO in the absence of any incriminating material - Assessment proceedings pending before the AO the assessee has exercised its option under section 245D(1) by moving an application before ITSC - HELD THAT - We have perused the order passed in case of Anantnadh Constructions and Farms (P.) Ltd. 2017 (5) TMI 1692 - ITAT MUMBAI with the assistance of Ld. A.Rs for the parties to the dispute, which is on identical issues and has been decided in favour of the assessee by holding that after reopening of the assessment order no addition can be made on the basis of income suo-moto offered by the assessee before the ITSC when settlement got aborted for one reason or the other mentioned in section 245HA(1) As following the decision in cases of Anantnadh Constructions and Farms (P.) Ltd. (supra) Shivali Mahajan 2019 (3) TMI 1196 - ITAT DELHI we are of the considered view that when the proceedings before the ITSC fail on the ground of non fulfilment of conditions laid down under section 245 of the Act by the assessee, AO is required to decide the issue independently and is not permitted to make addition merely on the basis of suo-moto disclosure made by the assessee before the ITSC, which is undisputedly on adhoc basis. More particularly, when no incriminating material was found or seized during the search and seizure operation carried out on the basis of which assessment has been framed, any addition made otherwise is not sustainable. We are of the considered view that the Ld. CIT(A) has erred in upholding the addition made by the AO in the absence of any incriminating material, merely on the basis of suo-moto disclosure made by the assessee before the ITSC, as the said proceedings got aborted due to non fulfilment of conditions by the assessee, no addition is sustainable in the eyes of law. So the question framed is decided in favour of the assessee and against the Revenue. Consequently, addition made by the AO and confirmed by the Ld. CIT(A) is ordered to be deleted. Hence, appeal filed by the assessee allowed.

Issues Involved:
1. Confirmation of additions made by the Assessing Officer without any incriminating evidence found at the time of search.
2. Confirmation of the addition of ?25,50,000/- on account of additional income offered in the application filed under section 245D(1) of the Income Tax Act before the Income Tax Settlement Commission (ITSC).

Issue-wise Detailed Analysis:

1. Confirmation of Additions Made by the Assessing Officer Without Any Incriminating Evidence Found at the Time of Search:

The appellant, Late Shri Sawarmal Hisaria, filed an appeal seeking to set aside the order passed by the Commissioner of Income Tax (Appeals)-48, Mumbai, for the assessment year 2013-14. The primary contention was that the CIT(A) erred in confirming the additions made by the Assessing Officer (AO) without any incriminating evidence found during the search. The search and seizure operation conducted on the Hisaria Group on 16.11.2017 did not uncover any incriminating material related to the year under consideration. The AO framed the assessment under section 153A read with section 143(3) of the Income Tax Act, based on the search operation, but no incriminating material was found. The Tribunal referenced the decision in the case of Anantnadh Constructions and Farms (P.) Ltd., which held that no addition could be made based on income offered before the ITSC when the settlement was aborted. The Tribunal emphasized that when no incriminating material is found during the search, no addition can be made under section 153A read with section 143(3), as supported by the decisions of the Delhi High Court in Kabul Chawla and the Bombay High Court in Continental Warehousing Corporation.

2. Confirmation of the Addition of ?25,50,000/- on Account of Additional Income Offered in the Application Filed Under Section 245D(1) of the Income Tax Act Before the ITSC:

The assessee had disclosed additional income of ?25,50,000/- for the assessment year 2013-14 in an application filed before the ITSC. However, the ITSC rejected the application on the grounds that the conditions under section 245C(1) were not fulfilled, and the matter was returned to the AO. The AO made an addition of ?25,50,000/- based on the additional income offered by the assessee before the ITSC. The Tribunal noted that the disclosure before the ITSC was made on an ad-hoc basis to buy peace of mind and avoid litigation. The Tribunal referred to various judicial precedents, including the case of Dolat Investment vs. Dy. Commissioner of Income Tax, which held that confidential information disclosed in the application before the ITSC cannot be used by the AO to make additions if the settlement proceedings fail. The Tribunal concluded that the AO could not make additions based solely on the disclosure made before the ITSC, especially when no incriminating material was found during the search. The Tribunal held that the CIT(A) erred in upholding the addition made by the AO in the absence of any incriminating material, and the addition was ordered to be deleted.

Conclusion:

The Tribunal allowed the appeal filed by the assessee, holding that the CIT(A) erred in confirming the addition made by the AO without any incriminating evidence found during the search. The addition of ?25,50,000/- based on the disclosure before the ITSC was deleted, as no incriminating material was found during the search, and the disclosure was made on an ad-hoc basis. The Tribunal emphasized that additions cannot be made solely based on disclosures before the ITSC when the settlement proceedings fail, and no incriminating material is found during the search.

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