2015 (9) TMI 384 - AT - Income Tax

Validity of addition made in the assessment proceedings framed u/s 143(3) r.w.s. 153A - abatement of assessment - assessment of gift receipts - Held that - Admittedly, these assessees have not filed original returns of income prior to the date of initiation of search under the regular provisions of the Act. The return of income filed by them under section 153A of the Act for the assessment year under consideration was the first return of income filed by the assessees. The second proviso to section 153A states that the assessment or re-assessment, if any, relating to any assessment year falling within the period of six assessment years referred to in section 153A(1) pending on the date of initiation of search shall abate. The assessment year under consideration, viz., AY 2006-07 falls within the six assessment years referred to in sec. 153A(1), but the same is not pending as on the date of initiation of search. Hence, the question of abatement of assessment does not arise in the instant cases. Whether the assessment year under consideration would fall in the category of unabated assessments or not? - Held that - In the instant cases, we have noticed earlier that both the assessees have not filed the return of income for the year under consideration under regular provisions of the Act. There should not be any dispute that the question of assessment shall arise only if the assessees have filed returns of income or if the assessing officer passes any assessment order to the best of his judgement u/s 144 of the Act. Hence, in the absence of return of income filed for the year under consideration and also in the absence of any other proceeding leading to passing of the assessment order, in our view, it cannot be said that there was any proceeding concluded/completed by the revenue for the year under consideration. In the absence of any proceeding, the question of the same becoming concluded also does not arise. In that view of the matter, the question of abatement or otherwise of the proceeding relating to AY 2006-07 also does not arise. Both the assessees have failed to furnish the details relating to the gifts received by them. The gift receipts fall under the category of cash credits falling within the purview of the provisions of sec. 68 of the Act. There should not be any dispute that the initial burden of proof is placed upon the assessees under sec. 68 of the Act to prove the nature and source of cash credit, i.e., the assessees have to prove the three main ingredients in respect of cash credits, viz., the identity of the creditor, the credit worthiness of the creditor and the genuineness of the transactions. In case of gifts, the assessees have also required to prove the nature of receipts. In the instant cases, both the assessees have failed to discharge the initial burden of proof placed upon them u/s 68 of the Act. Hence, we do not find any infirmity in the decision of Ld CIT(A) in confirming the assessment of gift receipts in the hands of both the assessees. - Decided against assessee.

Issues Involved:
1. Validity of additions made by the AO under section 143(3) r.w.s. 153A of the Act.
2. Whether the assessment year 2006-07 falls under concluded proceedings.
3. The applicability of the ratio laid down by the Special Bench of the Tribunal in the case of All Cargo Global Logistics Ltd.
4. The burden of proof under section 68 of the Act regarding the nature and source of cash credits (gifts).

Detailed Analysis:

1. Validity of Additions Made by the AO:
The assessees challenged the validity of the additions made by the AO during assessment proceedings framed under section 143(3) r.w.s. 153A of the Act, following search operations. The AO issued notices under section 153A and assessed the gift amounts as income since the assessees could not furnish details of the gifts received.

2. Concluded Proceedings:
The assessees argued that the assessment year 2006-07 falls under concluded proceedings, and as per the provisions of section 153A, the AO could only make additions based on incriminating materials found during the search. They cited various cases to support their contention. However, the CIT(A) disagreed, stating that since the assessees had not filed returns under regular provisions before the search, there were no concluded proceedings. The Tribunal upheld this view, noting that the absence of original returns or assessment orders meant there were no concluded proceedings to abate.

3. Applicability of the Special Bench Ratio:
The assessees relied on the Special Bench decision in All Cargo Global Logistics Ltd., which stated that additions in concluded assessments could only be based on incriminating material found during the search. The Tribunal, however, clarified that this ratio did not apply because the assessees had not filed returns for the year under consideration before the search. Thus, the AO was justified in scrutinizing the returns filed in response to the section 153A notice.

4. Burden of Proof under Section 68:
On the merits, the Tribunal noted that the assessees failed to provide details related to the gifts received, which fall under the category of cash credits within the purview of section 68. The initial burden of proof to establish the nature and source of cash credits lies with the assessees, including proving the identity, creditworthiness of the creditor, and the genuineness of the transaction. The assessees did not discharge this burden, leading to the confirmation of the AO's assessment of the gift receipts as income.

Conclusion:
The Tribunal concluded that the assessees could not rely on the Special Bench decision due to the absence of concluded proceedings prior to the search. The AO was justified in making additions based on the scrutiny of the returns filed under section 153A. On the merits, the assessees' failure to prove the nature and source of the gifts under section 68 justified the addition of the gift amounts as income. Consequently, the appeals were dismissed.

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