2016 (2) TMI 624 - AT - Income Tax

Addition u/s. 68 - addition based on statement of third party - Held that - As assessee during the course of proceedings has discharged its by submitting necessary evidence available to establish the bonafide of the transactions. Thereafter, the onus shifted on the revenue to prove that the claim of the assessee was factually incorrect. Simply by pointing out that the applicant companies did not have sufficient income or that the bank accounts indicated credits and debits in rapid succession leaving little balance does not discharge the burden cast upon the revenue to take an adverse view in the matter. Moreover, if there was statement of a person or any other material indicating tax evasion by the assessee, or persons in control of its management, the material relied upon should have been made available to the assessee in its entirety. We find that this was not done. Therefore, we are in agreement with the Ld. CIT(A) finding that this is not the case where addition should have been made u/s. 153C, but u/s. 147/ 143(3) after making proper enquiries. In the present facts of the case, the addition is not legally sustainable and therefore, was rightly deleted by the Ld. CIT(A), which does not need any interference on our part, hence, we uphold the same and decide the issue against the Revenue. - Decided in favour of assessee

Summary

Issues:
1. Revenue's appeal against the deletion of addition under section 68 of the Income Tax Act.
2. Assessee's cross objection challenging the jurisdiction and validity of proceedings under Section 153C.

Analysis:

Issue 1: Revenue's Appeal - Deletion of Addition under Section 68
The Revenue contested the deletion of an addition of Rs. 25,00,96,500 made under section 68 of the Income Tax Act by the Ld. CIT(A). The Ld. CIT(A) found that the assessee had provided evidence to establish the bona fide nature of the transactions, shifting the burden to the Revenue to prove otherwise. The Revenue's argument that the applicant companies lacked income or had rapid credit-debit transactions was deemed insufficient to justify the addition. The Ld. CIT(A) emphasized that the burden on taxing authorities is to act fairly and not in a biased manner. The Tribunal concurred, citing case law to support the view that the addition was not legally sustainable under section 153C, but rather should have been considered under sections 147/143(3) after proper inquiries. The Tribunal upheld the Ld. CIT(A)'s decision to delete the addition, referencing relevant judgments to support their conclusion.

Issue 2: Assessee's Cross Objection - Challenge to Jurisdiction under Section 153C
The Assessee's cross objection challenged the jurisdiction and validity of proceedings under Section 153C. The Assessee contended that the initiation of proceedings and the subsequent assessment under Section 153C lacked jurisdiction due to an allegedly unlawful and invalid search. Additionally, the Assessee argued that no incriminating material belonging to them was found during the search, questioning the foundation of the proceedings. The Ld. CIT(A) rejected these contentions. However, the Tribunal, after thorough consideration, found in favor of the Assessee, emphasizing the importance of proper satisfaction by the Assessing Officer regarding incriminating material found during the search. The Tribunal agreed that the proceedings under Section 153C were flawed and upheld the deletion of the addition, dismissing the Assessee's cross objection as infructuous.

In conclusion, the Tribunal dismissed the Revenue's appeal and the Assessee's cross objection, affirming the Ld. CIT(A)'s decision to delete the addition under section 68 and ruling against the jurisdiction and validity of proceedings under Section 153C. The judgment highlighted the significance of burden of proof, fair conduct by taxing authorities, and adherence to legal procedures in tax assessments.