2023 (6) TMI 1474 - AT - Income Tax

Assessment u/s 153A - when no incriminating material found in search - Addition u/s 68 and section 69C - bogus long-term capital gains and short-term capital gains - HELD THAT - We uphold the plea of the assessee that there was no incriminating material or information found during the course of the search in relation to the transactions conducted by the assessee during the assessment years 2012-13 and 2013-14. Therefore in light of the law laid down in Abhisar Buildwell (P.) Ltd. 2023 (4) TMI 1056 - SUPREME COURT the grounds raised in assessee s cross objections for the assessment years 2012-13 and 2013-14 are allowed. Additions made u/s 68 and section 69C - As the assessee furnished various documents in support of its claim before the AO in order to substantiate the sale of shares which were not found to be false fabricated or fictitious as also noted by the coordinate bench in the aforesaid decision. AO placed reliance upon the statements of third-party wherein there is no allegation that the assessee himself has participated in any price rigging of shares. Thus reference to the preponderance of probabilities without refuting the direct evidence or finding fault in the same is not justified. Therefore we find no infirmity in the impugned order deleting the additions made under section 68 and section 69C - Decided in favour of assessee.

Summary

1. ISSUES PRESENTED and CONSIDERED

The Tribunal considered the following core legal issues:

• Whether the additions made by the Assessing Officer (AO) under sections 68 and 69C of the Income Tax Act, 1961, for the assessment years 2012-13 to 2015-16, were justified.
• Whether the assumption of jurisdiction under section 153A of the Act was valid in the absence of any incriminating material found during the search for the assessment years 2012-13 and 2013-14.
• Whether the deletion of additions by the Commissioner of Income Tax (Appeals) [CIT(A)] for the assessment years 2014-15 and 2015-16 was appropriate based on the merits of the case.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Additions under Sections 68 and 69C

• Relevant Legal Framework and Precedents: Sections 68 and 69C of the Income Tax Act deal with unexplained cash credits and unexplained expenditure, respectively. The AO made additions based on alleged bogus long-term and short-term capital gains from transactions in certain scrips.
• Court's Interpretation and Reasoning: The Tribunal noted that the AO's additions were primarily based on third-party statements and information from SEBI regarding alleged price manipulation in certain scrips. The Tribunal emphasized the need for direct evidence linking the assessee to such manipulation.
• Key Evidence and Findings: The Tribunal found no direct evidence or incriminating material against the assessee. The SEBI orders, which initially suspected manipulation, were later revoked, exonerating the assessee.
• Application of Law to Facts: The Tribunal applied the principle that additions in unabated assessments require incriminating material found during the search. The absence of such material rendered the additions unsustainable.
• Treatment of Competing Arguments: The Tribunal considered the Revenue's reliance on SEBI's interim orders and third-party statements but found these insufficient to justify the additions without corroborative evidence.
• Conclusions: The Tribunal upheld the deletion of additions by the CIT(A) for the assessment years 2014-15 and 2015-16, finding no evidence of manipulation or bogus transactions.

Issue 2: Jurisdiction under Section 153A

• Relevant Legal Framework and Precedents: Section 153A allows for assessment or reassessment of income in cases where a search is conducted. For unabated assessments, incriminating material is required to justify additions.
• Court's Interpretation and Reasoning: The Tribunal relied on the Supreme Court's decision in Abhisar Buildwell (P.) Ltd., which mandates the presence of incriminating material for additions in unabated assessments.
• Key Evidence and Findings: The Tribunal found no incriminating material or evidence discovered during the search that could justify the additions for the assessment years 2012-13 and 2013-14.
• Application of Law to Facts: The Tribunal concluded that the absence of incriminating material invalidated the jurisdiction under section 153A for the assessment years 2012-13 and 2013-14.
• Treatment of Competing Arguments: The Tribunal rejected the Revenue's arguments, emphasizing the lack of any material linking the assessee to the alleged bogus transactions.
• Conclusions: The Tribunal allowed the assessee's cross objections, holding that the jurisdiction under section 153A was not valid for the assessment years 2012-13 and 2013-14.

3. SIGNIFICANT HOLDINGS

• Verbatim Quotes of Crucial Legal Reasoning: "The existence of incriminating material is sine qua non in order to initiate the proceedings under section 153A of the Act."
• Core Principles Established: Additions in unabated assessments require incriminating material found during the search. Reliance on third-party statements without direct evidence is insufficient for sustaining additions under sections 68 and 69C.
• Final Determinations on Each Issue: The Tribunal dismissed the Revenue's appeals for all assessment years, upheld the deletion of additions by the CIT(A) for the assessment years 2014-15 and 2015-16, and allowed the assessee's cross objections for the assessment years 2012-13 and 2013-14 due to the absence of incriminating material.