2018 (10) TMI 50 - AT - Income Tax

Assessment u/s 153A - addition on account of share application money, treating the same as unexplained cash credit u/s 68 - proof of incriminating material found as result of search - Held that - As decided in the case of M/s Brahmaputra Finlease (P) Ltd. Vs DCIT 2018 (3) TMI 1598 - ITAT DELHI as relying on the case of best infrastructure (India) private limited 2017 (8) TMI 250 - DELHI HIGH COURT , despite the admission of accommodation entry in statements under section 132(4) of the Act, the court held that the statement do not constitute as incriminating material. In the instant case, neither is there any statement of any accommodation entry operator claiming that any entry was not provided nor any director has admitted that assessee obtained accommodation entry. Thus, the case of the assessee is on better footing then the case of Best Infrastructure (I) P. Ltd (supra). We do not have any hesitation to hold that the statement under section 132(4) of Sh. Sampat Sharma cannot be treated as incriminating material found during the course of search. In the result, we hold that addition of share capital in the year under consideration has been made without relying on any incriminating material found during the course of search. Both the conditions as completed assessment and no incriminating material, have been satisfied in the case, thus,no addition could have been made in the instant assessment year in view of the finding of the Hon ble Delhi High Court in the case of Kabul Chawla 2015 (9) TMI 80 - DELHI HIGH COURT - decided in favour of assessee.

Issues Involved:
1. Legality of proceedings initiated under Section 153A of the Income Tax Act.
2. Validity of the addition of ?87,00,000 as unexplained cash credits under Section 68 of the Income Tax Act.
3. Adherence to principles of natural justice.
4. Levy of interest under sections 234A, 234B, 234C, and 234D of the Income Tax Act.

Detailed Analysis:

1. Legality of Proceedings under Section 153A:
The primary issue was whether the initiation of proceedings under Section 153A and the subsequent assessment were valid given that no incriminating material was found during the search. The assessee contended that the addition was not based on any material found during the search, referencing the case of CIT vs. Kabul Chawla, which held that in the absence of incriminating material, no addition could be made to the already assessed income. The Tribunal noted that the original assessment for the relevant year was completed before the search and no incriminating material was found during the search that pertained to the assessee. Therefore, the initiation of proceedings under Section 153A was deemed invalid.

2. Addition of ?87,00,000 as Unexplained Cash Credits:
The Assessing Officer (AO) added ?87,00,000 to the assessee's income as unexplained cash credits under Section 68, based on share capital received from certain companies. The AO argued that these companies were mere paper entities with no real business activities and were used to route unaccounted money back to the assessee. The AO relied on statements from directors and other documents found during the search. However, the Tribunal found that these documents did not directly relate to the assessee or substantiate the addition. The Tribunal referenced previous ITAT decisions involving the same group of companies, which had similar facts and where similar additions were deleted. It was concluded that in the absence of incriminating material directly linked to the assessee, the addition under Section 68 could not be sustained.

3. Principles of Natural Justice:
The assessee argued that the assessment order was passed without granting sufficient opportunity for a hearing, violating the principles of natural justice. The Commissioner of Income Tax (Appeals) [CIT(A)] observed that the AO had issued mandatory notices and questionnaires, and the assessee had been given ample opportunity to present its case. The Tribunal upheld this view, noting that the assessee had indeed been given sufficient opportunity to respond and participate in the proceedings.

4. Levy of Interest under Sections 234A, 234B, 234C, and 234D:
The assessee contested the levy of interest under Sections 234A, 234B, 234C, and 234D, arguing that these were not applicable under the circumstances. The Tribunal, following its decision to delete the additions, held that the consequential levy of interest would also not stand.

Conclusion:
The Tribunal concluded that the initiation of proceedings under Section 153A was invalid as no incriminating material was found during the search. Consequently, the addition of ?87,00,000 as unexplained cash credits under Section 68 was deleted. The Tribunal also found no violation of the principles of natural justice and ruled that the levy of interest under Sections 234A, 234B, 234C, and 234D was not applicable. The appeals of the assessee were allowed in full.

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