2019 (5) TMI 850 - AT - Income Tax

Assessment u/s 153A - Unexplained cash credit u/s 68 - whether search and seizure did disclose any incriminating material? - HELD THAT - Addition by treating the share application money as unexplained cash credit u/s 68 was made by the Assessing Officer in the assessment completed u/s 153A on the basis of Bank account found during the course of search and since the said Bank account as well as the transactions reflected therein were duly disclosed by the assessee in its return of income originally filed for the year under consideration, we find ourselves in agreement with the contention of the assessee that the same cannot be treated as incriminating material found during the course of search. The addition made by AO u/s 68 and confirmed by the ld. CIT(Appeals) thus was not based on any incriminating material found during the course of search and the same, in our opinion, is not sustainable being outside the scope of section 153A - Decided in favour of assessee.

Issues Involved:

1. Addition of ? 15,00,000/- as unexplained cash credit under section 68 of the Income Tax Act, 1961.
2. Scope of assessment under section 153A in relation to unabated assessments.

Issue-wise Detailed Analysis:

1. Addition of ? 15,00,000/- as unexplained cash credit under section 68:

The primary issue in this case was the addition of ? 15,00,000/- made by the Assessing Officer (AO) and confirmed by the Commissioner of Income Tax (Appeals) [CIT(A)] on account of share application money received by the assessee. The AO treated this amount as unexplained cash credit under section 68 of the Income Tax Act, 1961. The assessee, a company belonging to the Bhalotia Group, was subjected to a search and seizure action under section 132, which revealed certain bank accounts showing receipt of share application money.

During the assessment proceedings, the AO called upon the assessee to prove the identity, capacity, and genuineness of the share applicants. Despite issuing notices under section 131, the share subscribers did not respond, and the assessee failed to produce them for examination. The AO noted several reasons for rejecting the assessee's submissions, including the lack of business activity, high premium on shares, and the pattern of bank transactions indicating that the companies were merely fronts to route unaccounted money.

The CIT(A) upheld the AO's decision, emphasizing that the transactions were accommodation entries to give a legal facade to unaccounted money. The CIT(A) also noted that the contributors of share capital did not have the means to establish their creditworthiness.

2. Scope of assessment under section 153A in relation to unabated assessments:

The assessee challenged the addition on the ground that it was made in an unabated assessment without any incriminating evidence found during the search. The assessee argued that the assessment for the year had become final before the date of search, and therefore, the scope of assessment under section 153A should be confined to undisclosed income detected based on incriminating material found during the search. The assessee relied on judicial precedents, including the decisions of the Hon'ble Delhi High Court in PCIT vs. Kurele Paper Mills Pvt. Limited and the Hon'ble Calcutta High Court in PCIT vs. Salasar Stock Broking Limited.

The Department contended that the bank accounts found during the search revealed the share application money and formed the basis for the addition under section 68. The Department argued that the assessee failed to establish the identity, capacity, and genuineness of the transactions, and thus, the addition was justified.

Tribunal's Findings:

The Tribunal considered the rival submissions and relevant material on record. It noted that the assessment originally completed for the year had become final before the date of search, and therefore, the scope of assessment under section 153A was limited to assessing undisclosed income based on incriminating material found during the search. The Tribunal agreed with the assessee's contention that the bank account found during the search was disclosed in the books of account and the balance-sheet filed with the regular return of income. Therefore, it did not constitute incriminating material.

The Tribunal referred to the judicial precedents cited by the assessee, which held that no addition could be made under section 153A in the absence of incriminating material found during the search. Consequently, the Tribunal concluded that the addition of ? 15,00,000/- made by the AO and confirmed by the CIT(A) was not sustainable, as it was outside the scope of section 153A.

Conclusion:

The Tribunal deleted the addition of ? 15,00,000/- and allowed the appeal of the assessee, holding that the addition was not based on any incriminating material found during the search and was therefore outside the scope of section 153A of the Income Tax Act, 1961.

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