2021 (9) TMI 858 - AT - Income Tax

Assessment u/s 153A - proof of incrementing material found in search or not? - validity of the additions under section 68 in absence of incriminating evidence found during search - HELD THAT - We find there is no reference in the Panchnama about incriminating evidence qua the share application money or share premium for all the impugned assessment years - assessee while filing reply before AO on 14.12.2018, in response to the show cause notice dated 29.08.2018, clearly stated there is no incriminating evidences against the assessee for making the said additions. We find that the AO passed the assessment order on 14.12.2018 and placed the same before JCIT for his approval, thus there is no consideration of material facts by A.O. with regard to the assessee s reply dated 14.12.2018 filed before the AO in response to the show cause notice dated 29.11.2018. Delhi High Court in celebrated case of CIT Vs Kabul Chawla 2015 (9) TMI 80 - DELHI HIGH COURT held that completed assessment can be interfered with by the AO while making assessment under section 153A only on the basis of some incriminating material unearthed during the course of search which was not produced or not already disclosed or made known in course of original assessment - no addition under section 68 was warranted in absence of incriminating evidence, in the abated assessment - Decided in favour of assessee. Validity of approval under section 153D - ground of appeal in granting bulk approval of the assessment under section 153A - JCIT approved the assessment order by presuming that the necessary opportunity has been given to the assessee and all the records, evidences and materials have been thoroughly verified. The JCIT granted bulk approval of 95 assessment orders which clearly defeats the intent and purpose behind insertion of section 153D brought in the statute by the Finance Act, 2007. JCIT while granting approval, presumed that Assessing Officer has given proper hearing to the assessee and thoroughly verified seized material and there are no adverse findings, satisfied himself that all the issues emanating from the records have been verified and additions wherever required have been proposed. We further find that there is no independent application of mind on the part of ld.JCIT while granting the approval. Mumbai Tribunal while considering the similar ground of appeal in granting bulk approval of the assessment under section 153A, in case of Arch Pharmalabs Ltd Vs ACIT 2021 (4) TMI 533 - ITAT MUMBAI held that the approval accorded under section 153D is without any occasion to refer to the assessment records and seized material, if any, incriminating the assessee and hence such approval is in the realm of an abstract approval of draft assessment orders which was unsubstantiated and unsupported and consequently suffered from total non-application of mind. No satisfaction in the approval order that draft assessment after considering the material placed before him, rather the ld JCIT recorded that it is presumed that the AO granted proper opportunity to the assessee etc. Also see Sanjay Duggal others 2021 (1) TMI 909 - ITAT DELHI We find convincing force in the submissions of the assessee that the approval granted by JCIT suffer from non-application of mind and depends on presumption of proper performance of duty by A.O. such per functionary approval under section 153D cannot termed as legitimate. The consequential assessment orders based on non-est approval under section 153D, thus are void-abinitio on this ground alone. - Decided in favour of assessee.

Issues Involved:
1. Invocation of Section 68 for addition of share capital and premium.
2. Addition of commission on share capital.
3. Validity of assessment under Section 153A in absence of incriminating evidence.
4. Evaluation of evidence and arguments submitted by the assessee.
5. Reliance on irrelevant and incorrect evidence without allowing cross-examination.
6. Jurisdictional issues related to the source of credit.
7. Mechanical nature of orders passed by lower authorities.
8. Validity of approval under Section 153D.

Detailed Analysis:

1. Invocation of Section 68 for addition of share capital and premium:
The assessee argued that the addition of ?4,25,00,000/- under Section 68 on account of share capital and premium was erroneous. The AO held that the investor companies were shell companies and treated the share premium as unaccounted money. The Tribunal found that no incriminating evidence regarding share application and share capital was found during the search, and thus, the addition under Section 68 was not warranted. The Tribunal referenced the decision in CIT Vs Kabul Chawla (2016) 380 ITR 573 (Delhi) and Singhad Technical Education Society (2017) 397 ITR 344 (SC) to support their conclusion.

2. Addition of commission on share capital:
The lower authorities added ?21,250/- as commission against the share capital received. The Tribunal, considering the lack of incriminating evidence found during the search, ruled that such an addition was not justified.

3. Validity of assessment under Section 153A in absence of incriminating evidence:
The Tribunal emphasized that additions under Section 153A could only be made based on incriminating evidence found during the search. Since no such evidence was found, the additions were deemed invalid. The Tribunal cited the Delhi High Court's decision in PCIT Vs Best Infrastructure (2017) 397 ITR 82 (Delhi) to support this view.

4. Evaluation of evidence and arguments submitted by the assessee:
The AO did not accept the assessee's evidence and arguments, which included details of share capital, share premium, and ledger extracts. The Tribunal noted that the AO's assessment order did not consider the assessee's reply dated 14.12.2018, which highlighted the absence of incriminating evidence.

5. Reliance on irrelevant and incorrect evidence without allowing cross-examination:
The assessee argued that the lower authorities relied on irrelevant and factually incorrect evidence without providing an opportunity for cross-examination, violating the principles of natural justice. The Tribunal found merit in this argument and ruled that the additions were unjustified.

6. Jurisdictional issues related to the source of credit:
The assessee contended that the orders were passed without jurisdiction as the source of credit had already been assessed by the jurisdictional assessing officer. The Tribunal did not find any specific discussion on this issue but ruled in favor of the assessee based on other grounds.

7. Mechanical nature of orders passed by lower authorities:
The Tribunal agreed with the assessee that the orders were mechanical and lacked application of mind, as the AO relied on statements and evidence not related to the case. The Tribunal emphasized the need for a thorough and individualized assessment for each year.

8. Validity of approval under Section 153D:
The Tribunal found that the approval granted under Section 153D was mechanical and without application of mind. The JCIT granted bulk approval for 95 assessment orders based on presumptions, which defeated the purpose of Section 153D. The Tribunal referenced decisions in Arch Pharmalabs Ltd & Arch Impex P. Ltd. and Rajat Minerals Pvt. Ltd. to support their ruling. Consequently, the Tribunal declared the assessment orders void-ab-initio.

Conclusion:
The Tribunal allowed all the appeals filed by the assessee, ruling that the additions under Section 68 and the commission were invalid due to the absence of incriminating evidence. The approval under Section 153D was also declared void due to lack of application of mind. The Tribunal emphasized the need for proper evaluation of evidence and adherence to principles of natural justice.

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