2023 (4) TMI 991 - AT - Income Tax

Assessment u/s 153A - Undisclosed investment in share capital - assessee could not explain the source and creditworthiness of investors - CIT-A deleted the addition - HELD THAT - In the case of PCIT v. Devangi 2017 (2) TMI 724 - GUJARAT HIGH COURT after the search conducted at the assessee's premises, AO initiated proceedings u/s 153A on the basis of the incriminating material seized for the period of the assessment year 2004-05 onwards, and made the addition for the assessment years 2000-01 to 2004-05. Tribunal deleted the addition holding that only undisclosed income and undisclosed assets deducted during the search could be brought to tax and in assessee's case no incriminating material was found with respect to the assessment years 2000-01 to 2004-05, at the time of search. Gujarat High Court held that the Tribunal was correct in law in holding that the scope of section 153A was limited to assessing only search related income. We are also of the view that CIT(A) has not erred in holding that the share application money received by the assessee pursuant to allotment of search cannot be construed as incriminating material found during the course of search and hence additions cannot be made in the hands of the assessee u/s. 153A of the Act in case of unabated assessment year in absence of any incriminating material unearthed during the course of search. In the case of M/s. Garg Brothers Pvt. Ltd. 2018 (4) TMI 986 - ITAT KOLKATA the ITAT held that no addition in Section 153A assessment for unexplained share capital in absence of incriminating material. Accordingly, in the case of Saumya Construction Pvt. Ltd. 2016 (7) TMI 911 - GUJARAT HIGH COUR and various other judicial precedents reproduced above, we are of the considered view that CIT(A) has not erred in facts and in law in deleting the additions made by the AO u/s. 68 of the Act, in the instant set of facts. In the result, the appeal of the Department is dismissed.

Issues Involved:

1. Deletion of addition on account of undisclosed investment in share capital.
2. Reliance on judicial precedents in the context of distinguishable facts.
3. Scope of additions during assessment under Section 153A in absence of incriminating material.
4. Interpretation of Section 153A regarding assessment or reassessment of total income.
5. Applicability of provisions of Chapter-XIV-B post-31/5/2003 searches.
6. Assessment of issues unrelated to search and seizure in Section 153A proceedings.
7. Prayer for setting aside the CIT(A) order and restoring the AO's order.

Summary:

1. Deletion of Addition on Account of Undisclosed Investment in Share Capital:

The Revenue challenged the deletion of an addition of Rs. 6,85,51,000/- on account of undisclosed investment in share capital. The Assessing Officer (AO) had added this amount, questioning the genuineness and creditworthiness of the investors. The CIT(A) deleted the addition, holding that the assessment year under consideration was unabated and no incriminating material was found during the search to justify the addition.

2. Reliance on Judicial Precedents in the Context of Distinguishable Facts:

The Revenue argued that the CIT(A) erred in relying on various judicial decisions, including the Gujarat High Court's decision in Pr. CIT Vs Saumya Construction Pvt. Ltd., which were not applicable as the facts of the present case were different. The CIT(A) held that the principles laid down in these cases were applicable, as the assessment year was unabated and no incriminating material was found during the search.

3. Scope of Additions During Assessment Under Section 153A in Absence of Incriminating Material:

The CIT(A) held that any addition during the assessment under Section 153A must be based on incriminating material found during the search. The AO's addition was not based on any such material but on the share application money recorded in the balance sheet, which was part of the regular assessment records.

4. Interpretation of Section 153A Regarding Assessment or Reassessment of Total Income:

The Revenue contended that Section 153A allows for the assessment or reassessment of total income for six assessment years preceding the search, regardless of whether incriminating material is found. The CIT(A) disagreed, stating that in the case of unabated assessment years, additions can only be made based on incriminating material found during the search.

5. Applicability of Provisions of Chapter-XIV-B Post-31/5/2003 Searches:

The CIT(A) noted that the provisions of Chapter-XIV-B, which required additions to be based on evidence found during the search, were not applicable to searches conducted after 31/5/2003. However, the CIT(A) held that the principles of making additions based on incriminating material found during the search still applied.

6. Assessment of Issues Unrelated to Search and Seizure in Section 153A Proceedings:

The CIT(A) held that issues unrelated to the search and seizure could not be assessed under Section 153A proceedings unless incriminating material related to those issues was found during the search. The AO's addition was not based on any such material.

7. Prayer for Setting Aside the CIT(A) Order and Restoring the AO's Order:

The Revenue prayed for setting aside the CIT(A) order and restoring the AO's order. The ITAT dismissed the appeal, upholding the CIT(A)'s decision that the addition was not sustainable as it was not based on any incriminating material found during the search.

Conclusion:

The ITAT upheld the CIT(A)'s order, stating that in the case of unabated assessment years, no addition can be made under Section 153A without incriminating material found during the search. The appeal of the Department was dismissed.

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