2022 (7) TMI 1553 - AT - Income Tax

Assessment u/s 153A - addition of bogus LTCG - incriminating material found during the course of search u/s 132(1) found or not? - CIT(A) deleted addition - HELD HAT - This appeal of the assessee is, being disposed of ex-parte qua the assessee after hearing the arguments of learned DR and perusing the relevant material available on record. As observed that a search u/s 132 in this case was conducted on 12.02.2015 and there was no assessment proceedings pending for the year under consideration on that date. There was thus no abatement of the assessment originally completed in the case of the assessee for the year under consideration and it was a case of unabated assessment which was completed by the AO after the search for the year under consideration. As per the settled position of law, the scope of such unabated assessment made u/s 153A of the Act was confined only to the additions which are based on the incriminating material found during the course of search and since there was no such incriminating material found during the course of search on the basis of which the said addition was made as held by the CIT (A) in his impugned order and not disputed by the DR, we find ourselves in agreement with CIT (A) that the impugned addition made by the AO on account of alleged bogus Long Term Capital Gain was not sustainable in the absence of any incriminating material found during the course of search to support and substantiate the same. We, therefore, find no infirmity in the order of the CIT (A) deleting the addition - Appeal of the Revenue is dismissed.

Summary

Issues:
- Deletion of addition of Rs. 22,89,898/- made on account of alleged claim of bogus Long Term Capital Gain.
- Interpretation of Section 153A regarding additions during assessment proceedings.
- Requirement of incriminating material for additions under Section 153A.

Analysis:

Deletion of Addition of Bogus Long Term Capital Gain:
The Revenue appealed against the deletion of an addition of Rs. 22,89,898/- representing alleged bogus Long Term Capital Gain. The Assessing Officer had added this amount to the total income of the assessee based on an investigation revealing manipulation of share prices of M/s. Karma Industries Ltd. The Assessing Officer found that the claim for Long Term Capital Gain was unsupported and treated it as bogus. The CIT (A) deleted this addition, citing lack of incriminating documents found during the search to support the addition. The CIT (A) emphasized that the addition was based solely on a third person's statement without corroborating evidence. The Tribunal upheld the CIT (A)'s decision, noting the absence of incriminating material during the search, thus rendering the addition unsustainable.

Interpretation of Section 153A for Additions:
The Revenue contended that the CIT (A) erred in holding that additions during assessment proceedings under Section 153A should be limited to incriminating material found during the search. The Revenue argued that Section 153A does not specify such a limitation. However, the Tribunal agreed with the CIT (A) that for unabated assessments under Section 153A, additions must be based on incriminating material discovered during the search. Since no such material was found in this case to support the addition of bogus Long Term Capital Gain, the Tribunal upheld the CIT (A)'s decision to delete the addition.

Requirement of Incriminating Material for Additions under Section 153A:
The Tribunal emphasized that for unabated assessments under Section 153A, additions must be supported by incriminating material discovered during the search. In this case, as no such material was found during the search related to the alleged bogus Long Term Capital Gain, the Tribunal concurred with the CIT (A) in deleting the addition. The Tribunal dismissed the Revenue's appeal, affirming the CIT (A)'s decision.

Overall, the Tribunal's decision highlighted the importance of incriminating material in making additions under Section 153A and upheld the deletion of the addition of alleged bogus Long Term Capital Gain due to lack of supporting evidence from the search proceedings.