2019 (4) TMI 675 - AT - Income Tax

Assessment u/s 153A - assessment was not pending on the date of search - proof of incriminating material unearthed during the course of search and seizure u/s 132 - Addition u/s 68 - HELD THAT - AO has solely relied upon the report of the Investigation Wing Kolkata and statement of one Shri Anand Sharma recorded by the Investigation Wing during the survey under section 133A. Therefore, even if the information/report of the Investigation Wing Kolkata is considered as a relevant evidence, the same cannot be regarded as incriminating material unearthed during the course of search and seizure u/s 132 in case of the assessee. The requirement for making the addition u/s 153A in the assessment year where the assessment was not pending on the date of search and the proceedings are in the nature of reassessment is essentially the incriminating material disclosing undisclosed income which was not disclosed by the assessee. In the case in hand, the AO himself has not claimed any incriminating material found during the search and seizure in the case of the assessee. Additions made by the AO while passing the assessment order under section 153A for the impugned assessment year cannot be sustained and liable to be set-aside. Coming to the merits of the additions sustained by the ld CIT(A) u/s 68 it is noted that the assessee company has received share application money of ₹ 8 lacs and ₹ 10.35 lacs as unsecured loan from M/s Jalsagar Commerce Pvt Ltd during the financial year relevant to impugned assessment year. As relying on M/S. KOTA DALL MILL VERSUS THE DEPUTY COMMISSIONER OF INCOME-TAX AND VICE-VERSA 2019 (1) TMI 344 - ITAT JAIPUR the addition made u/s 68 towards share application money and unsecured loan from M/s Jalsagar Commerce Pvt ltd is hereby directed to be deleted. - Decided is favour of assessee.

Issues Involved:
1. Validity of the assessment order under Section 153A read with Section 143(3).
2. Alleged violation of natural justice principles.
3. Confirmation of additions by the CIT(A).
4. Additions under Section 68 of the Income Tax Act, 1961.
5. Specific additions concerning share capital and unsecured loans.
6. Rejection of the theory of peak credit and telescoping.

Issue-Wise Detailed Analysis:

1. Validity of the Assessment Order Under Section 153A:
The assessee argued that the assessment order passed under Section 153A read with Section 143(3) is bad in law and void ab-initio as the assessment for the year under consideration was not abated on the date of the search. The Tribunal noted that the assessment for the impugned assessment year was not pending on the date of the search and was not abated. It was emphasized that additions could only be made based on incriminating material found during the search. The Tribunal referred to the cases of CIT vs. Kabul Chawla and Jai Steel (India) vs. ACIT, which held that in the absence of any incriminating material, the completed assessment can only be reiterated.

2. Alleged Violation of Natural Justice Principles:
The assessee contended that the assessment order violated the principle of natural justice by not giving the opportunity for cross-examination of the alleged accommodation entry providers. The Tribunal observed that the AO relied on statements from third parties recorded in other cases without providing an opportunity for cross-examination. This was considered a violation of natural justice principles.

3. Confirmation of Additions by the CIT(A):
The CIT(A) confirmed the additions made by the AO, which the assessee argued were arbitrary and based on irrelevant material. The Tribunal found that the CIT(A) erred in confirming the additions without proper evidence and solely relied on statements and reports from other authorities.

4. Additions Under Section 68 of the Income Tax Act, 1961:
The AO made additions under Section 68 for unexplained credits in the form of share capital and unsecured loans. The Tribunal noted that these additions were based on statements from third parties and reports from the Investigation Wing, Kolkata, without any direct incriminating evidence found during the search of the assessee. The Tribunal held that such additions could not be sustained in the absence of incriminating material found during the search.

5. Specific Additions Concerning Share Capital and Unsecured Loans:
The CIT(A) confirmed the addition of ?18,35,000 received from M/s Jalsagar Commerce Pvt Ltd towards share capital and unsecured loans. The Tribunal examined the transactions with M/s Jalsagar Commerce Pvt Ltd and found that the AO and CIT(A) relied on statements from third parties without direct evidence. The Tribunal referred to the case of M/s Kota Dal Mill, where similar transactions were examined and found genuine based on documentary evidence provided by the assessee. The Tribunal directed the deletion of the addition made under Section 68 towards share application money and unsecured loans from M/s Jalsagar Commerce Pvt Ltd.

6. Rejection of the Theory of Peak Credit and Telescoping:
The CIT(A) rejected the theory of peak credit and did not allow the benefit of telescoping, recycling, and rotation of funds. The Tribunal did not specifically address this issue in detail, as the primary focus was on the validity of the additions made under Section 68 and the lack of incriminating material found during the search.

Conclusion:
The Tribunal allowed the appeal of the assessee, holding that the additions made by the AO under Section 153A were not sustainable in the absence of incriminating material found during the search. The Tribunal directed the deletion of the additions made towards share application money and unsecured loans from M/s Jalsagar Commerce Pvt Ltd.

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