2019 (3) TMI 1117 - AT - Income Tax

Assessment u/s 153A - Addition u/s 68 - as argued during the course of search no incriminating material/documents was found regarding the share application money - as per assessee all the necessary documents from the stated investors were filed before the Assessing Officer in order to prove the identity, genuineness and the creditworthiness of the investors - HELD THAT - No infirmity in the order of the CIT(A) in deleting the addition made by the Assessing Officer in the absence of any incriminating material found during the course of search. Even though the Revenue has filed an appeal, the grounds of which are already reproduced in the preceding paragraphs, however, the Revenue has not challenged the order of the CIT(A) deleting the addition in absence of any incriminating material found during the course of search. Therefore, the order of the CIT(A) is upheld on the legal ground. Since the order of the CIT(A) deleting the addition on legal ground is upheld, therefore, the grounds raised by the Revenue on merit become infructuous being merely academic in nature. - Decided in favour of assessee. Scope of CIT s powers u/s 251(1)(a) - Addition u/s 56(2)(viib)- AO made addition in respect of share capital including share premium u/s 68 - CIT(A) deleted addition related to share capital but hold that share premium is taxable u/s 56(2)(viib) - HELD THAT - Assessing Officer in the body of the assessment order has neither discussed this issue nor made any addition on this account. Under these circumstances, it has to be seen as to whether the ld.CIT(A) has jurisdiction to make such addition on an issue which was never considered by the Assessing Officer. Considering all AO in the assessment order has neither discussed this issue nor made any addition u/s 56(2)(viib), therefore, respectfully following CIT VERSUS SARDARI LAL & CO 2001 (9) TMI 1130 - DELHI HIGH COURT and SH. VIKRANT PURI VERSUS ACIT, CENTRAL CIRCLE-13 NEW DELHI 2016 (4) TMI 419 - ITAT DELHI we are of the considered opinion that the ld.CIT(A) has no power to adjudicate the issue by introducing a new source of income and his order has to be confined to those items of income which is subject matter of original assessment. We accordingly set aside the order of the CIT(A) and direct the Assessing Officer to delete the addition. Although the powers of the CIT(A) are co-terminus with that of the powers of the Assessing Officer, yet, he has jurisdiction only on those items which have been considered by the Assessing Officer irrespective of the fact whether the issue is subject matter of appeal or not. However, in our opinion, he does not have any jurisdiction over an issue which has not been considered by the Assessing Officer. In case it is accepted that the CIT(A) has power to consider an issue which was not considered by the Assessing Officer, then, the provisions of section 263 or 147 will become otiose. - decided in favour of assessee.

Summary

Issues Involved:
1. Validity of addition under Section 68 of the Income Tax Act, 1961.
2. Jurisdiction of CIT(A) to make additions not considered by the Assessing Officer.
3. Applicability of Section 56(2)(viib) regarding share premium.

Issue-wise Detailed Analysis:

1. Validity of Addition under Section 68:
The primary issue was whether the addition of ?3,66,00,200/- under Section 68 for unexplained share capital and share premium was valid. The Assessing Officer (AO) had added this amount, alleging that the share capital was received from shell companies lacking creditworthiness. The CIT(A) deleted the addition, stating that no incriminating material was found during the search and the assessment was not pending at the time of the search. The Tribunal upheld the CIT(A)'s decision, emphasizing that no addition could be made under Section 153A in the absence of incriminating material. The Tribunal cited various decisions, including the Hon'ble Delhi High Court's rulings in CIT vs. Kabul Chawla and CIT vs. Meeta Gutgutia, which held that completed assessments could not be disturbed without incriminating material found during the search.

2. Jurisdiction of CIT(A) to Make Additions Not Considered by the AO:
The CIT(A) made an addition of ?3,58,65,500/- under Section 56(2)(viib) regarding the share premium, which was not originally considered by the AO. The Tribunal held that the CIT(A) does not have jurisdiction to introduce a new source of income that was not part of the original assessment. The Tribunal relied on the Hon'ble Delhi High Court's decisions in CIT vs. Union Tyres and CIT vs. Sardari Lal & Co., which restrict the CIT(A)'s powers to matters considered by the AO. The Tribunal set aside the CIT(A)'s addition under Section 56(2)(viib), directing the AO to delete the addition.

3. Applicability of Section 56(2)(viib) Regarding Share Premium:
The AO did not initially consider the applicability of Section 56(2)(viib) concerning the share premium. The CIT(A) invoked this section, questioning the valuation of shares issued at a premium. The assessee provided a valuation report from a Chartered Accountant, valuing the shares at ?261 per share using the Discounted Free Cash Flow Method. The CIT(A) rejected the valuation, stating that the projected figures lacked basis. The Tribunal, however, found that the CIT(A) overstepped his jurisdiction by making an addition on an issue not considered by the AO. The Tribunal emphasized that the CIT(A)'s powers are limited to issues adjudicated by the AO and cannot introduce new sources of income.

Conclusion:
The Tribunal dismissed the Revenue's appeal and allowed the assessee's appeal, holding that:
- No addition under Section 68 could be made in the absence of incriminating material found during the search.
- The CIT(A) exceeded his jurisdiction by making an addition under Section 56(2)(viib) for share premium, which was not considered by the AO.
- The CIT(A)'s order to delete the addition under Section 68 was upheld, and the addition made under Section 56(2)(viib) was set aside.