2022 (7) TMI 441 - HC - Income Tax

Assessment u/ 153A - Addition u/s 68 - unsecured loan treated as bogus and sham transactions - HELD THAT - As regards AY 2012-13 it was noted by the ITAT that it was an unabated assessment and unless there was incriminating material, no addition could be made. In particular it was noticed that the statement of the two persons of UAPL was recorded on 13th November, 2014 i.e. after the search was completed on 7th November, 2014. Therefore, such statements could not be material unearthed during the course of search. Nevertheless, in those statements there was nothing brought out to show that cash was received from the Assessee by UAPL in lieu of the cheque issued by UAPL to the Assessee. Further, the name of the Assessee did not appear in the statement made to the IO by the Directors of the UAPL. The said loan amount of Rs.3.06 crores was not mentioned by them as an accommodation entry. The said two persons were not allowed to be cross-examined by the Assessee. As regards the observation of the CIT (A) that the lack of opportunity to the Assessee to cross examine the Directors of UAPL was not fatal to the addition made by the AO, the ITAT found the said proposition to be contrary to the law explained by the Supreme Court in its decision in M/s. Andaman Timber Industries 2015 (10) TMI 442 - SUPREME COURT Completed assessments can be interfered with by the Assessing Officer while making the assessment under section 153A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment - See KABUL CHAWLA 2015 (9) TMI 80 - DELHI HIGH COURT Since the findings of the ITAT are factual, based on the documents placed on record and have not been shown to be perverse by the Revenue and are consistent with the settled legal position as explained above, the Court finds that no error has been committed by the ITAT in either order deleting the additions sought to be made by the AO. - Decided in favour of assessee.

Summary

Issues Involved:
- Justification of deleting additions made under Section 68 of the Income Tax Act by the ITAT
- Credibility of the creditor M/s. Uniworth Agency Pvt. Ltd. (UAPL)
- Jurisdiction of proceedings initiated under Section 153A of the Act
- Cross-examination of witnesses and violation of principles of natural justice

Analysis:

1. Justification of Deleting Additions under Section 68:
The appeals by the Revenue were directed against the ITAT's orders deleting additions made under Section 68 of the Income Tax Act to the taxable income of the Assessee. The Revenue contended that the creditor, M/s. Uniworth Agency Pvt. Ltd. (UAPL), was a paper company for bogus accommodation entries. However, the ITAT found that the loans received from UAPL were disclosed by the Assessee in the returns and were supported by banking transactions. The ITAT determined that no incriminating material was found during the search, and thus, the additions made by the AO were unwarranted.

2. Credibility of Creditor UAPL:
The Assessee claimed to have received loans from UAPL for both AYs in question. The ITAT noted that the Investigating Officer had examined the Directors of UAPL, and the loans were disclosed in the Assessee's returns. The Assessee argued that it had discharged the initial onus of proving the identity, genuineness, and creditworthiness of the creditor. The ITAT found that the lack of opportunity for the Assessee to cross-examine the Directors of UAPL was fatal to the addition made by the AO, citing the violation of principles of natural justice.

3. Jurisdiction of Proceedings under Section 153A:
The Assessee contended that the proceedings initiated under Section 153A of the Act were without jurisdiction since no incriminating material was found during the search, and the assessment of the relevant AYs had not abated. The ITAT agreed that an assessment under Section 153A must be based on seized material and not arbitrary additions without relevance to the seized material. The ITAT held that completed assessments can only be interfered with based on incriminating material unearthed during the search.

4. Cross-Examination of Witnesses and Violation of Principles of Natural Justice:
The ITAT emphasized the importance of allowing the Assessee to cross-examine witnesses, as per the law explained by the Supreme Court. The lack of opportunity for the Assessee to cross-examine the Directors of UAPL was considered a serious flaw, rendering the order null and void. The ITAT's findings were based on factual evidence and legal principles, leading to the dismissal of the appeals by the Revenue.

In conclusion, the High Court upheld the ITAT's decision to delete the additions made by the AO, as the findings were based on factual evidence and consistent with legal principles. The Court dismissed the appeals by the Revenue, finding no error in the ITAT's orders.