2021 (3) TMI 820 - AT - Income Tax

Assessment u/s 153A - Addition u/s 68 - absence of any incriminating material found during the course of search - HELD THAT - AO in the instant case, made addition for A.Y. 2003-04 and ₹ 50 lakhs for A.Y. 2004-05 by invoking the provisions of section 68 since the assessee could not substantiate with evidence to his satisfaction regarding the identity and credit worthiness of the investor companies who have invested in the share capital of the assessee and the genuineness of the transaction. We find, the ld.CIT(A) upheld the action of the AO. It is the submission of the ld. Counsel for the assessee that since the addition made by the AO and sustained by the CIT(A) for both the years are not based on any incriminating material found during the course of search, and is based on post-search enquiries, therefore, such addition deserves to be deleted. We find some force for the assessee. A perusal of the assessment order as well as the order of the CIT(A) for both the years clearly shows that the addition is not based on any incriminating material found as a result of search, but, the same is based on post search enquiries made by the AO. It is also pertinent to mention that the AO while making the addition has relied on the enquiries conducted for examining investments made in the case of M/s Vikas Telecom Ltd and in M/s DD Resorts Pvt. Ltd. since the companies who have made investment in the assessee company have also made investments in the above two companies - no seized document was referred to by the AO in the body of the assessment order. Be that as it may, the addition in the instant case is not based on any incriminating material and based on post search enquiries which is evident from the assessment orders as well as the orders of CIT(A) for both the years. Under these circumstances, we have to see whether such addition can be sustained in unabated assessment completed u/s 153A of the Act. As in the case of Kabul Chawla 2015 (9) TMI 80 - DELHI HIGH COURT has held that in the absence of any incriminating material found during the course of search, no addition can be made u/s 153A of the Act in case of a completed assessment. Appeals filed by the assessee are allowed.

Issues Involved:
1. Legality of reassessment and change of opinion in the context of a search and seizure operation.
2. Addition of unexplained cash credits under Section 68 of the IT Act.
3. Consideration of additional evidence filed by the assessee.
4. Admissibility of additional grounds raised by the assessee.
5. Basis of additions not being on incriminating material found during the search.

Issue-wise Detailed Analysis:

1. Legality of Reassessment and Change of Opinion:
The assessee argued that the reassessment was not based on seized material from the search operation under Section 132 of the IT Act but was a change of opinion, making the order illegal. The Tribunal noted that the search was conducted on 31.07.2008, and the assessee's returns for the relevant years were filed before this date. The Tribunal observed that the additions made by the AO were not based on any incriminating documents found during the search but on post-search enquiries. This was deemed outside the scope of Section 153A of the Act, as reaffirmed by the Hon’ble Delhi High Court in CIT vs. Kabul Chawla, where it was held that additions in unabated assessments can only be made based on incriminating documents found during the search.

2. Addition of Unexplained Cash Credits under Section 68:
The AO had made additions of ?2,84,50,000/- for A.Y. 2003-04 and ?50,00,000/- for A.Y. 2004-05 under Section 68, as the assessee failed to prove the identity, creditworthiness, and genuineness of the transactions. The Tribunal found that these additions were based on post-search enquiries and not on any incriminating material found during the search. The Tribunal cited the case of Vikas Telecom Ltd., where similar additions were deleted by the CIT(A) and upheld by the Tribunal due to the absence of incriminating material.

3. Consideration of Additional Evidence Filed by the Assessee:
The assessee contended that the CIT(A) erred in not considering additional evidence filed. The Tribunal did not specifically address this issue in detail, as the primary ground of the additions not being based on incriminating material was sufficient to decide the appeals in favor of the assessee.

4. Admissibility of Additional Grounds Raised by the Assessee:
The assessee raised an additional ground contending that the additions were not based on incriminating material found during the search. The Tribunal admitted this additional ground as it was purely a legal issue and no new facts were required to be investigated. The Tribunal relied on the decisions of the Hon’ble Supreme Court in NTPC Ltd. vs. CIT and Jute Corporation of India Ltd. vs. CIT to admit the additional ground.

5. Basis of Additions Not Being on Incriminating Material Found During the Search:
The Tribunal found that the AO's additions were based on post-search enquiries and not on any incriminating material found during the search. The Tribunal cited several decisions, including Kabul Chawla and Meeta Gutgutia, to support the view that in the absence of incriminating material, no additions can be made under Section 153A in case of completed assessments. Consequently, the Tribunal deleted the additions made by the AO and sustained by the CIT(A).

Conclusion:
The Tribunal allowed the appeals filed by the assessee, holding that the additions made by the AO and sustained by the CIT(A) were not based on any incriminating material found during the search and were therefore liable to be deleted. The decision was pronounced in the open court on 17.03.2021.

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