2017 (11) TMI 122 - AT - Income Tax

Addition on unexplained cash credit under section 68 - proceedings under section 153C - Held that - The condition precedent for issuing notice u/s 153C and assessing or re-assessing the income of such other person, is that the money, bullion, jewellery or other valuable article or thing or books of account or documents seized or requisitioned should belong to such other person has not been satisfied. If the requirement is not satisfied, recourse cannot be had to the provisions of Section 153C of the I.T. Act. In the present case, the department did not produce any evidence to prove that assessee-company received any accommodation entry or any material was found during the course of search to prove that cash credit already received by assessee-company was bogus or that it was taken through some other person on giving cash to them. Therefore, no material was found during the course of search to prove that any money (cash credit) belonging to the assessee-company. The conditions of Section 153C of the I.T. Act, are therefore, not satisfied. In view of the above discussion, we are of the view that initiation of proceeding under section 153C of the I.T. Act against the assessee-company is bad in law and is liable to be quashed. We, accordingly, set aside the orders of the authorities below and quash the initiation of proceedings under section 153C of the I.T. Act. Appeal of the assessee-company is allowed.

Issues Involved:
1. Validity of proceedings under section 153C of the I.T. Act.
2. Addition of ?3.18 crores as unexplained cash credit under section 68 of the I.T. Act.
3. Disallowance of current year loss and brought forward losses.
4. Charging of interest under section 234A/234B of the I.T. Act.

Issue-wise Detailed Analysis:

1. Validity of proceedings under section 153C of the I.T. Act:
The primary condition for initiating proceedings under section 153C is that the seized material should belong to a person other than the one searched. The Tribunal noted that no incriminating material was found during the search that belonged to the assessee-company. The documents seized were from third parties (Today Group of cases) and not from the assessee-company. The Tribunal emphasized that the A.O. did not provide sufficient evidence to prove that the seized material belonged to the assessee-company. Citing various judicial precedents, including the Hon’ble Supreme Court and High Courts, the Tribunal concluded that the conditions precedent for initiating proceedings under section 153C were not satisfied, thereby rendering the proceedings invalid.

2. Addition of ?3.18 crores as unexplained cash credit under section 68 of the I.T. Act:
The A.O. added ?3.18 crores to the assessee-company's income, alleging it was unexplained cash credit. The assessee-company provided evidence such as PAN, confirmation, bank statements, and income tax returns of the creditor, M/s. Double Star Builders Pvt. Ltd. The A.O. dismissed these documents, arguing that the transactions did not pass the test of genuineness and were accommodation entries. However, the Tribunal found that the assessee-company had discharged its onus by proving the identity, creditworthiness, and genuineness of the transaction. The Tribunal referred to judicial precedents, including the Hon’ble Delhi High Court, which held that the assessee need not prove the source of the source. Consequently, the Tribunal deleted the addition made by the A.O.

3. Disallowance of current year loss and brought forward losses:
The A.O. disallowed the loss of ?24,16,422 for the current year and the brought forward losses, citing that the return was not filed within the stipulated time under section 153C. The Tribunal noted that the assessee-company had filed the original return on 30th October 2007, and the return under section 153C on 11th July 2011. The Tribunal held that the A.O. should not have denied the brought forward losses as the returns were part of the record and mentioned in the books of account. The Tribunal found the A.O.'s disallowance incorrect and allowed the set-off and carry forward of the losses.

4. Charging of interest under section 234A/234B of the I.T. Act:
The Tribunal did not specifically address the issue of charging interest under sections 234A/234B, as the primary issues regarding the validity of proceedings under section 153C and the addition of unexplained cash credit were decided in favor of the assessee-company. The quashing of the proceedings under section 153C inherently affected the imposition of interest under these sections.

Conclusion:
The Tribunal allowed the appeal of the assessee-company, quashing the proceedings under section 153C and deleting the additions made by the A.O. on account of unexplained cash credit. The Tribunal also allowed the set-off and carry forward of the current year and brought forward losses. The decision was pronounced in the open court.

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