2017 (12) TMI 466 - AT - Income Tax

Addition towards share capital - search assessment framed u/s 153A/143(3) - proof of incriminating material found during the course of search - Held that - In respect of abated assessments (i.e pending proceedings on the date of search), fresh assessments are to be framed by the ld AO u/s 153A of the Act which would have a bearing on the determination of total income by considering all the aspects, wherein the existence of incriminating materials does not have any relevance. However, in respect of unabated assessments, the legislature had conferred powers on the ld AO to just follow the assessments already concluded unless there is an incriminating material found in the search to disturb the said concluded assessment. In our considered opinion, this would be the correct understanding of the provisions of section 153A of the Act, as otherwise, the necessity of bifurcation of abated and unabated assessments in section 153A of the Act would become redundant and would lose its relevance. Hence the arguments advanced by the ld DR in this regard deserves to be dismissed. We hold that the assessment framed u/s 143(1) of the Act for the Asst Year 2010-11, which was unabated / concluded assessment, on the date of search, deserves to be undisturbed in the absence of any incriminating material found in the course of search and accordingly the addition made on account of share capital u/s 68 of the Act is hereby directed to be deleted. - Decided in favour of assessee.

Summary

Issues Involved:
1. Justification of addition towards share capital in the absence of incriminating material found during the search.

Issue-wise Detailed Analysis:

1. Justification of Addition Towards Share Capital:
The primary issue in this appeal revolves around whether the Commissioner of Income Tax (Appeals) [CIT(A)] was justified in upholding the addition of ?1,40,00,000 towards share capital in the search assessment framed under section 153A/143(3) of the Income Tax Act, 1961, despite the absence of any incriminating material found during the search.

Facts and Arguments:
- A search and seizure operation was conducted on the Sethia group and its sister concerns on 19.03.2014. The assessee, part of this group, had filed a return of income on 08.09.2010 declaring a taxable income of ?90,993, which was not selected for scrutiny, making the assessment for AY 2010-11 a concluded proceeding.
- The Assessing Officer (AO) added ?1,40,00,000 towards share capital under section 68 of the Act, arguing that search assessments under section 153A allow for reassessment of total income irrespective of incriminating materials found.
- The assessee contended that no incriminating materials were found related to share capital during the search, and all necessary details regarding the share capital were provided, including names, addresses, PAN, confirmation letters, ITR acknowledgments, profit and loss accounts, balance sheets, source of funds, bank statements, and ROC documents.
- The AO based the addition on post-search depositions from individuals who were not directors of the share applicant companies and denied the assessee the opportunity for cross-examination.

CIT(A) Observations:
- The CIT(A) noted that no incriminating documents were seized during the search, and the additions made were not based on any such documents.
- Citing judicial precedents, including the Hon'ble Calcutta High Court's decision in Veer Prabhu Marketing Ltd. and the Supreme Court's dismissal of the SLP in Kurele Paper Mills Pvt. Ltd., the CIT(A) concluded that without incriminating material, the original assessment should not be disturbed.

Revenue's Appeal:
- The revenue argued that the finding of an incriminating fact during the search regarding the buyback of shares at a lower price constituted sufficient cause for initiating proceedings under section 153A.
- The revenue also contended that the term 'incriminating material' is not found in the Act and relied on the Karnataka High Court's decision in Canara Housing Development Co vs DCIT, which allows search assessments without incriminating materials.

Tribunal's Analysis:
- The tribunal emphasized that for concluded assessments, no additions could be made unless incriminating material was found during the search.
- The tribunal cited several judicial precedents, including the Delhi High Court's decision in Kabul Chawla and the Bombay High Court's decision in Continental Warehousing Corporation, which support the view that completed assessments can only be interfered with based on incriminating material found during the search.
- The tribunal also referenced the Supreme Court's dismissal of the revenue's SLP against the Delhi High Court's decision in Kabul Chawla, reinforcing the principle that in the absence of incriminating material, concluded assessments should not be disturbed.

Conclusion:
- The tribunal held that the assessment for AY 2010-11, being a concluded proceeding, should remain undisturbed in the absence of any incriminating material found during the search.
- The addition of ?1,40,00,000 towards share capital under section 68 was directed to be deleted.
- The cross objections by the assessee, being supportive of the CIT(A)'s order, did not require specific adjudication.

Final Order:
The appeal by the revenue was dismissed, and the cross objection of the assessee was allowed. The order was pronounced in the court on 01.12.2017.