2023 (4) TMI 1402 - AT - Income Tax

Assessment u/s 153A - incriminating material was found to justify the addition or not? - additions made u/s 68 - HELD THAT - DR has failed to substantiate any incriminating material found during the course of search which could establish non-genuineness of the unsecured loan. As far as his arguments of falsity of the books of accounts is concerned we are of the opinion that any entry in the books of accounts could be false as a result of any incriminating material discovered during the search. So falsity of books of account in recording the entries of unsecured loan may be as a result of any incriminating material found and but those entries are not incriminating material in itself unless established to be false by way of other incriminating material. No infirmity in the same. Accordingly we uphold the same. The grounds of appeal of the Revenue are accordingly dismissed.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

• Whether the Commissioner of Income-tax (Appeals) [CIT(A)] was correct in holding that no incriminating material was found to justify the addition made by the Assessing Officer (AO).
• Whether the CIT(A) was justified in deleting additions made under Section 68 of the Income-tax Act, 1961, due to the lack of incriminating material found during the search.
• Whether the CIT(A) was correct in relying on the decision of the Bombay High Court in the case of Continental Warehousing Corporation, despite the pending appeal before the Supreme Court.
• The jurisdictional validity of the assessment order passed by an officer of a rank higher than prescribed by the CBDT instructions.

ISSUE-WISE DETAILED ANALYSIS

1. Incriminating Material and Additions under Section 68

• Relevant Legal Framework and Precedents: The legal framework involves Sections 68 and 153A of the Income-tax Act, 1961. The precedent set by the Bombay High Court in Continental Warehousing Corporation held that in cases of non-abated assessments, no additions could be made without incriminating material.
• Court's Interpretation and Reasoning: The Tribunal upheld the CIT(A)'s decision, emphasizing the necessity of incriminating material for additions in non-abated assessments. The Tribunal found that the AO did not present any tangible or intangible incriminating material discovered during the search.
• Key Evidence and Findings: The statement of Mr. Kumar Pal Banda admitting to non-genuine loans was retracted, and no corroborative evidence was found. The Tribunal noted that statements alone, without supporting evidence, do not constitute incriminating material.
• Application of Law to Facts: The Tribunal applied the legal principle that incriminating material must be found during the search to justify additions in non-abated assessments. The absence of such material led to the deletion of the additions.
• Treatment of Competing Arguments: The Revenue argued that the statements recorded and the non-existence of loan providers were incriminating. The Tribunal dismissed these arguments, noting the lack of corroborative evidence and the independent nature of survey findings.
• Conclusions: The Tribunal concluded that the CIT(A) correctly deleted the additions due to the absence of incriminating material.

2. Reliance on Continental Warehousing Corporation Case

• Relevant Legal Framework and Precedents: The reliance was on the Bombay High Court's decision in Continental Warehousing Corporation, which restricts additions in non-abated assessments without incriminating material.
• Court's Interpretation and Reasoning: The Tribunal supported the CIT(A)'s reliance on this decision, noting that the pending appeal before the Supreme Court does not invalidate the High Court's ruling.
• Conclusions: The Tribunal upheld the CIT(A)'s decision, affirming the applicability of the Continental Warehousing Corporation case.

3. Jurisdictional Validity of the Assessment Order

• Relevant Legal Framework: The jurisdictional issue was based on CBDT Instruction No. 1/2011, which prescribes the rank of officers for assessing cases based on declared income.
• Court's Interpretation and Reasoning: The Tribunal did not adjudicate on this issue, as the Revenue's appeal was dismissed, rendering the jurisdictional challenge academic.

SIGNIFICANT HOLDINGS

• Core Principles Established: In non-abated assessments, additions cannot be made without incriminating material found during the search. Statements recorded under Section 132(4) require corroboration to be considered incriminating.
• Final Determinations on Each Issue: The Tribunal upheld the CIT(A)'s deletion of additions due to the absence of incriminating material. The reliance on the Continental Warehousing Corporation case was deemed appropriate, and the jurisdictional challenge was dismissed as academic.