2018 (10) TMI 279 - AT - Income Tax

Assessment framed u/s 153A - Unexplained credit under section 68 - proof of incriminating material - Held that - The fact that no incriminating material was found has been admitted at Bar by the DR before us. The only document pointed out by the Revenue, we find, is a Balance Sheet that too pertaining to the succeeding year and which throws no light absolutely on the facts leading to additions made in the impugned year on account of share application money of ₹ 50 lakhs received from M/s RSM Metals and M/s. Octomac Software Pvt. Ltd. The said document, we find, reflects only some unsecured loans taken by the assessee from the two companies that too in the succeeding year only and not in the impugned year. Therefore it is an admitted fact that no incriminating material was found during search conducted on the assessee. The fact that the assessment for the impugned year has not abated is also an undisputed fact. In view of the same we hold that the Ld. CIT(Appeals) has rightly deleted the additions made following the proposition in case of Kabul Chawla 2015 (9) TMI 80 - DELHI HIGH COURT that no addition to be made in assessment framed u/s 153A of the Act in absence of any incriminating material, where assessments were not abated. - Decided against revenue.

Issues Involved:
1. Deletion of addition made by the Assessing Officer on account of unsecured loans as unexplained credit under section 68 of the Income Tax Act, 1961.
2. Legality of additions made under section 153A of the Income Tax Act, 1961 in the absence of incriminating material found during the search.

Issue-Wise Detailed Analysis:

1. Deletion of Addition Made by the Assessing Officer on Account of Unsecured Loans as Unexplained Credit Under Section 68 of the Income Tax Act, 1961:

The Revenue filed an appeal against the order of the Commissioner of Income Tax (Appeals) [CIT(Appeals)], which deleted the addition of ?1 crore made by the Assessing Officer (AO) under section 68 of the Income Tax Act, 1961. The addition was made on account of unsecured loans treated as unexplained credit. The AO had added ?1 crore received as share application money from two companies, M/s RSM Metals Ltd. and M/s Octamac Software Private Ltd., treating it as unexplained credit. The CIT(Appeals) deleted the addition on the grounds that no incriminating material was found during the search, and the assessments for the impugned year were not pending and had not abated.

2. Legality of Additions Made Under Section 153A of the Income Tax Act, 1961 in the Absence of Incriminating Material Found During the Search:

A search and seizure operation under section 132 of the Act was conducted at the premises of the assessee. The assessment was completed under section 153A(1)(b) read with section 143(3) of the Act, resulting in an addition of ?1 crore. The CIT(Appeals) deleted the addition, relying on various judicial decisions, including the Hon’ble Bombay High Court in the case of CIT Vs. M/s Murli Agro Products Pvt. Ltd. and the Hon’ble Delhi High Court in CIT Vs. Kabul Chawla, which held that in the absence of any incriminating material found during the search, no addition could be made if the assessment was not pending and had not abated.

The Department's Representative (DR) admitted that no incriminating material was found during the search and that the original assessment proceedings were completed on the date of the search. The only document pointed out by the Revenue was a balance sheet of the assessee for the succeeding year, which did not pertain to the impugned year and did not provide any evidence for the addition made.

The Tribunal found no reason to interfere with the order of the CIT(Appeals), which deleted the additions made on the grounds that they were not based on any incriminating material found during the search, and the assessment for the impugned year had not abated. The Tribunal upheld the CIT(Appeals)’s reliance on the decision in the case of Kabul Chawla, which stated that no addition could be made in the absence of incriminating material where assessments were not abated.

The Tribunal dismissed the grounds raised by the Revenue, noting that the decision in the case of Smt. Dayawanti Vs. CIT, which distinguished the case of Kabul Chawla, had been discussed in the subsequent decision of the Hon’ble Delhi High Court in the case of Pr CIT v/s Meeta Gutgutia, where it was observed that no incriminating material was found, and hence additions made were not justified.

Conclusion:

The Tribunal upheld the CIT(Appeals)’s order deleting the addition of ?1 crore made under section 68 of the Act, as it was not based on any incriminating material found during the search, and the assessment for the impugned year had not abated. The appeal of the Revenue was dismissed.

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