2018 (11) TMI 894 - AT - Income Tax

Assessment u/s 153A - proof of incriminating material found in search to the share capital or share premium were 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 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 AO to just follow the assessments already concluded unless there is an incriminating material found in the search to disturb the said concluded assessment. 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 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 and share premium u/s 68 is hereby directed to be deleted - there was absolutely no incriminating material found during the course of search in the instant case with regard to the issue of share capital, share premium except understanding the discovery of modus-operandi of raising bogus share capital based on the certain statements recorded from entry operators in some cases in West Bengal. - Decided in favour of assessee Trading loss on sale of shares - Held that - As given for the Asst Year 2010-11 with regard to disturbing the concluded assessments in the absence of incriminating materials found during search, we hold that the disallowance of trading loss on sale of shares of ₹ 38,45,844/- made by the ld CITA in the assessment framed u/s 153A of the Act cannot be made as per law. Hence the disallowance made thereon in the impugned assessment is hereby directed to be deleted for want of incriminating materials. Since the relief is granted to the assessee on the preliminary ground of want of incriminating materials , we refrain to give our finding on merits of the addition for the Asst Year 2013-14 and hence the adjudication of other grounds on merits does not arise. Accordingly, the grounds raised by the assessee are allowed for Asst Year 2013-14.

Summary

Issues Involved:

1. Validity of addition towards share capital without incriminating material for AY 2010-11.
2. Disallowance of trading loss on sale of shares without incriminating material for AY 2013-14.

Issue-wise Detailed Analysis:

1. Validity of Addition Towards Share Capital Without Incriminating Material for AY 2010-11:

The primary issue was whether the addition of ?3,50,00,000 towards share capital in the assessment framed under section 153A of the Income Tax Act, 1961 was justified without any incriminating material found during the search. The assessee argued that since the original assessment for AY 2010-11 was completed under section 143(1) and no incriminating material was found during the search, the concluded assessment should not be disturbed. The Assessing Officer (AO) added ?3,50,00,000 under section 68 of the Act, asserting that the assessment under section 153A allows for reassessment irrespective of incriminating materials. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld this addition, emphasizing the AO's reliance on statements from directors of companies involved with the assessee.

The tribunal noted that no incriminating material was found during the search regarding the share capital and share premium. It referenced the Central Board of Direct Taxes (CBDT) instructions, which discourage obtaining confessions during search operations without credible evidence. The tribunal cited several judicial precedents, including the Delhi High Court's decision in CIT vs Kabul Chawla, which held that in the absence of incriminating material, completed assessments cannot be disturbed.

The tribunal concluded that since the assessment for AY 2010-11 was concluded and no incriminating material was found, the addition of ?3,50,00,000 was not justified. Thus, the addition was deleted.

2. Disallowance of Trading Loss on Sale of Shares Without Incriminating Material for AY 2013-14:

The issue was whether the disallowance of ?38,45,844 as trading loss on the sale of shares of M/s Blue Circle Services Ltd. in the assessment framed under section 153A was justified without any incriminating material. The assessee contended that the assessment for AY 2013-14 was concluded under section 143(1) and no incriminating material was found during the search. The AO disallowed the loss, treating the transactions as pre-arranged and the shares as penny stocks.

The tribunal observed that no incriminating material was found during the search regarding the trading loss. Following the same rationale as in the AY 2010-11 issue, the tribunal held that the disallowance of trading loss in the absence of incriminating material was not justified. Consequently, the disallowance was deleted.

Conclusion:

The appeals for both AY 2010-11 and AY 2013-14 were allowed, with the tribunal directing the deletion of the additions made by the AO in the absence of incriminating materials found during the search. The tribunal emphasized adherence to judicial precedents and the necessity of incriminating material for disturbing concluded assessments under section 153A.