2016 (7) TMI 448 - AT - Income Tax

Assessment u/s 153A - unexplained credit u/s 68 addition - Held that - It is undisputed in the present case that the original assessment proceedings had already been completed u/s 143(3) prior to the date of the search. It is equally undisputed that the impugned additions were made by the Assessing Officer without there being any finding that the additions related to any seized material. The Ld. CIT(A) has given a categorical finding in para 10.1 of his order that in respect of the entities who had subscribed to the shares, the Assessing Officer had asked for various details which were filed by the assessee to prove the identity and creditworthiness of the share subscribers, at the time of the original 143(3) proceedings. The Ld. CIT (A) has also mentioned that the Assessing Officer in 143(3) proceedings, after considering all the evidences/document, accepted the creditworthiness, identity and genuineness of the transactions and that no additions were made on account of unexplained credit u/s 68 of the Act. In the subsequent assessment order u/s 153A/143(3), the additions have been made without any reference to any incriminating material and therefore following the ratio laid down by the Hon ble Delhi High Court in CIT Central-III vs Kabul Chawla (2015 (9) TMI 80 - DELHI HIGH COURT ) - Decided in favour of assessee.

Summary

Issues:
- Validity of proceedings under Section 153A of IT Act
- Addition of unexplained cash credits under Section 68 of IT Act
- Assessment based on incriminating material found during search

Analysis:

Validity of Proceedings under Section 153A of IT Act:
The Department filed an appeal against the order passed by the Ld. CIT(A)-III, New Delhi for assessment year 2004-05. The assessee challenged the assessment framed under Section 153A, arguing that no incriminating documents were found during the search and seizure action. The Ld. CIT(A) rejected the legal ground related to the validity of proceedings under Section 153A but allowed the appeal on merits, deleting the entire addition. The Department raised grounds challenging the deletion of the addition.

Addition of Unexplained Cash Credits under Section 68 of IT Act:
The AO found that the assessee had increased the share capital/share application money by a significant amount from various entities. Notices were issued to these entities, and some did not comply, resulting in the addition of unexplained credit to the assessee's income. The Department raised grounds questioning the deletion of this addition by the Ld. CIT(A).

Assessment Based on Incriminating Material Found During Search:
The CO filed by the assessee challenged the initiation and validation of assessment under Section 153A, arguing that no incriminating material pertaining to the time of search was found. The CO also contested the action and procedure followed by the AO during the assessment under Section 153A, claiming it was invalid under the law. The CO highlighted the importance of incriminating material in making additions during assessments under Section 153A.

Judgment:
The ITAT Fame Tribunal analyzed the provisions of Section 153A of the IT Act, emphasizing that assessments under this section should be based on incriminating material found during the search. In this case, the original assessment had been completed under Section 143(3) before the search, and the additions made under Section 153A were not supported by any incriminating material. Referring to the decision of the Hon'ble High Court of Delhi in a similar case, the ITAT allowed the CO of the assessee and quashed the assessment order passed under Section 143(3)/153A. Consequently, the Department's appeal was dismissed, and the CO of the assessee was allowed.

This detailed analysis of the judgment highlights the key issues involved, the arguments presented by both parties, and the final decision rendered by the ITAT Delhi.