2023 (9) TMI 881 - AT - Income Tax

Assessment u/s 153A - Addition u/s 68 - share application money as unexplained one - Whether the share capital and share premium money received by the assessee during the year is required to be treated as their unexplained credit and deserves to be added under section 68? - HELD THAT - Inspite of search the Department was unable to lay its hands on any incriminating material. AO though tried to pass the assessment order as a regular assessment order but what he has referred is the statement of Shri Mukesh Banka only. Thereafter his observations are peripheral in nature demonstrating the credential of the share applicant companies. The two statements recorded much prior to the search by Investigating Agencies of the Income Tax Department in some other proceedings cannot be used against the assessee without giving them opportunity to cross examination. We can make reference to the decision of the Hon ble Supreme Court in the case of Andaman Timber Industries 2015 (10) TMI 442 - SUPREME COURT as observed the statements, which are being used as a foundation for making any addition could not be used unless the assessee is being provided opportunity to cross examine. In these cases, the ld. Assessing Officer even not recorded the statements himself, these were recorded by some Investigating Agencies in some other proceedings in the past. This can be, at the most, information for initiating the assessment machinery in motion, but they cannot be considered conclusive in a search assessment proceeding under section 153A. Therefore, the additions in the assessments under section 153A are not sustainable. Assessment against non existent company company merged - assessment in the hands of the successor - Two companies have merged and the National Company Law Tribunal has amalgamated all these companies w.e.f. 01.04.2017. The assessee has demonstrated that in this year neither Bakshiram Uderam Holdings Pvt. Limited has raised any share capital money nor Narsingh Ispat Udyog Pvt. Limited. Whatever action has done in the past by their share applicants cannot be investigated in the hands of the assessee after amalgamation. Therefore, we are of the view that in view of the National Company Law Tribunal s decision on the amalgamation petition, no inquiry could be made in the hands of both these assessees qua the antecedents of merged companies. On the second-fold also, additions are not sustainable.

Summary

Issues Involved:
1. Legality of additions under Section 68 of the Income Tax Act, 1961.
2. Validity of assessments under Section 153A of the Income Tax Act, 1961.
3. Impact of amalgamation orders by the National Company Law Tribunal (NCLT) on the assessment process.

Summary:

Issue 1: Legality of Additions under Section 68
The Revenue challenged the deletion of additions made under Section 68 of the Income Tax Act, 1961, by the Commissioner of Income Tax (Appeals) [CIT(A)]. The Assessing Officer (AO) had added amounts received as share application money, treating them as unexplained credits. The CIT(A) deleted these additions, noting that no incriminating material was found during the search to justify such additions. The Tribunal upheld the CIT(A)'s decision, emphasizing that the AO relied on statements recorded in other investigations without providing an opportunity for cross-examination, which is against the principles laid down by the Supreme Court in Andaman Timber Industries.

Issue 2: Validity of Assessments under Section 153A
The Tribunal examined whether the AO was justified in invoking Section 153A for assessments when no incriminating material was found during the search. It referred to the Supreme Court's decision in PCIT vs. Abhisar Buildwell Pvt. Limited, which held that in the absence of incriminating material, completed assessments cannot be reopened under Section 153A. The Tribunal found that the AO failed to demonstrate the existence of any incriminating material that could justify reassessment under Section 153A. Consequently, the Tribunal quashed the assessments for the years in question, deeming them without jurisdiction.

Issue 3: Impact of Amalgamation Orders by NCLT
For the assessment year 2018-19, the Tribunal considered the effect of amalgamation orders by the NCLT, which had sanctioned the merger of several companies with the assessees. The Tribunal noted that the amalgamation orders were final and binding, and the AO could not investigate the antecedents of the merged companies in the hands of the successor entities. The Tribunal relied on the Supreme Court's decision in Dalmia Power Ltd., which held that NCLT orders have statutory force and are binding on tax authorities. Therefore, the Tribunal concluded that no fresh capital was raised during the relevant year, and the provisions of Section 68 could not be invoked.

Conclusion:
The Tribunal dismissed all the appeals filed by the Revenue, upholding the deletions made by the CIT(A) and quashing the assessments under Section 153A. The Tribunal emphasized the necessity of incriminating material for reassessments under Section 153A and recognized the binding nature of NCLT amalgamation orders on tax assessments.