2021 (11) TMI 774 - AT - Income Tax

Validity of assessment u/s 153A - bogus LTCG - search action on the premises of Prraneta Industries Ltd. revealed that this entity was not carrying our any business activities and had no underlying assets - HELD THAT - We find that the assessee had filed original return of income on 20/07/2011 and search operations were carried out on assessee group on 25/07/2013. It is quite evident that on the date of search, no assessment proceedings were pending against the assessee and no notice u/s. 143(2) was ever issued to the assessee till the date of search. The time limit for issuance of such notice had already expired on 30/09/2012 i.e. within 6 months from the end of relevant assessment year. Thus, AY 2011-12 was a non-abated year. In such a case, the additions which could be made has necessarily to be on the basis of incriminating material found by the department during the course of search operations as held by Hon'ble Bombay High Court in CIT Vs. Continental Warehousing Corporation 2015 (5) TMI 656 - BOMBAY HIGH COURT There must be a nexus between the statement recorded and the evidence/material found during search in order to sustain additions on the basis of recorded statement. Similar is the view of Hon'ble High Court in an earlier judgment of CIT Vs. Sunil Aggarwal 2015 (11) TMI 286 - DELHI HIGH COURT wherein Hon'ble Court refused to give any evidentiary value to the statement made by the assessee u/s. 132(4) as the department could not find any unaccounted money, article or thing or incriminating document either at the premises of the company or at the residence of managing director or other directors. In such circumstances, the finding of the Tribunal that the statement of managing director recorded patently u/s. 132(4) did not have any evidentiary value, was upheld. The ratio of all these decisions makes it clear that the surrendered income must be correlated with some incriminating material found during the course of search action so as to justify the addition. We find that there is no such incriminating material in the case of the assessee which would show that the transactions under consideration were sham transactions and there was any connection/nexus between the assessee and the group entities of Shri Shirish C. Shah. This legal issue stood covered in assessee's favor by the decision of SMC bench of Tribunal rendered in the case of another assessee of the group i.e. Smt. Reena A. Ajmera 2021 (3) TMI 917 - ITAT MUMBAI We concur with the submissions of Ld. AR that in the absence of any incriminating material, the additions could not be made in the hands of the assessee as per settled legal proposition. Accordingly, the impugned additions stand deleted. The legal ground raised by the assessee stand allowed.

Summary

Issues Involved:
1. Validity of assessment framed under Section 153A of the Income Tax Act, 1961.
2. Presence of incriminating material found during the search operations.
3. Reliance on statements made under Section 132(4) and their subsequent retraction.
4. Legality of additions made based on alleged bogus Long-Term Capital Gains (LTCG).

Detailed Analysis:

Validity of Assessment Framed under Section 153A:
The appellant challenged the validity of the assessment framed under Section 153A, arguing that the necessary preconditions for initiating and completing the assessment were not satisfied. The Tribunal noted that the original return was filed on 20/07/2011, and no assessment proceedings were pending on the date of the search (25/07/2013). Since no notice under Section 143(2) was issued within the stipulated time, the assessment year 2011-12 was considered a non-abated year. The Tribunal referenced the Bombay High Court's decision in CIT Vs. Continental Warehousing Corporation, which held that additions in non-abated assessments must be based on incriminating material found during the search.

Presence of Incriminating Material:
The Tribunal found that no incriminating material was unearthed during the search operations that could substantiate the additions made by the Assessing Officer (AO). The AO's allegations were primarily based on the search findings related to Shri Shirish C. Shah and his group entities, rather than any material found with the assessee. The Tribunal emphasized that the AO, in the remand report, admitted the absence of incriminating material against the assessee.

Reliance on Statements Made under Section 132(4) and Their Subsequent Retraction:
The assessee had retracted the statement made under Section 132(4) through affidavits, claiming that the statement was given under coercion and undue influence. The Tribunal held that in the absence of corroborative evidence, the retracted statement could not be the sole basis for additions. The Tribunal referenced the CBDT Circulars, which advise against relying solely on confessions obtained during search operations without credible evidence. The Tribunal also cited judicial precedents emphasizing the need for corroborative evidence to support admissions made during searches.

Legality of Additions Based on Alleged Bogus LTCG:
The AO alleged that the LTCG earned by the assessee on the sale of shares was bogus, based on the search findings related to Shri Shirish C. Shah, who allegedly provided bogus accommodation entries. However, the Tribunal found no direct evidence linking the assessee's transactions to the alleged bogus activities of Shri Shirish C. Shah. The Tribunal noted that the transactions were executed through stock exchanges at prevailing market prices, and there was no evidence of cash movement or sham transactions.

Conclusion:
The Tribunal concluded that in the absence of any incriminating material found during the search, the additions made under Section 153A were not sustainable. The Tribunal allowed the appeals, deleting the impugned additions and holding that the assessment framed under Section 153A was invalid. The Tribunal's decision was consistent across all related appeals, leading to the deletion of similar additions in other cases within the same group.

Order Pronounced:
The Tribunal's order was pronounced on 02nd November 2021, allowing all the appeals in terms of the detailed analysis provided.