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2022 (1) TMI 637 - AT - Income TaxAssessment u/s 153A - Addition u/s 68 - bogus share capital and premium received - whether the investigation made by the investigation wing subsequent to the post search operation amounts to incriminating material? - HELD THAT - No materials or income found during search but AO relied completely on the information forwarded by the investigation wing post search and he refers to few slips of papers being alleged seized materials where the capital fund transfers are written and which are to be split and distributed into group companies. These alleged seized papers were not referred to anywhere in the assessment order and further we enquired with the Ld. DR, whether the above said seized papers exist in the assessment records. He, after verification submitted before us that no such papers exist. Considering the above facts on record, we do not see any No reason to treat the assessment valid for the AY 2009-10 to 2012-13 since these were not abated at the time of search. By respectfully relying on the various decisions of the various courts on the subject of incriminating material, we hold that the assessment made by the assessing officer under section 143(3) r.w.s 153A without any incriminating material is bad in law and accordingly no addition could be made thereon for the receipt of share capital and share premium. AYs 2013-14 and 2014-15 the assessee had submitted sufficient information before tax authorities that the sister companies have sufficient funds to make investments. The sister concerns having less or meagre income is of no relevance for the purpose of making investment in the assessee company. What is relevant is the availability of cash flow with the sister concerns to make investments in the assessee company. There is no requirement in the statute to make investment in another concern only out of income earned during the year. From the perusal of the audited financials of M/s. Patni Holdings Pvt. Ltd., it is found that the net owned funds as on 31.3.2013 and 31.3.2012 was ₹ 9.15 crores which is very much sufficient to make investment of ₹ 3.50 crores in assessee company in A.Y. 2013-14. Similarly from the perusal of the audited financials of M/s. SMDS Trading Pvt. Ltd., it is found that the net owned funds as on 31.3.2013 and 31.3.2012 was ₹ 15 crores which is very much sufficient to make investment of ₹ 1.36 crores in assessee company in A.Y. 2013-14 and ₹ 25 lakhs in A.Y. 2014-15. Therefore, in our considered view, the assessee has also proved the credit worthiness. Genuineness of the transaction - There is no involvement of cash anywhere in this transaction and all the transactions are routed only through bank. The tax authorities have not brought on record any evidence to prove otherwise. We observe from the record that the AO merely relied on the inspector report as per which all the companies are in one address and return of income are filed in different places than the registered office. It is brought to our notice that the companies are operated from 71, Canning Street and 3, Mango Lane, Kolkata are address of whole complex which consist of several floors where several offices are situated. Merely because the returns are filed from a different location other than the registered office, as alleged by the AO, the same cannot be the reason to draw adverse inference on the genuineness of the transactions. Therefore, in our considered view, the assessee has complied and proved the onus rest on them. The oral report of the inspector also cannot be relied on for deciding the genuineness unless there is proper evidence on record. Therefore, in our considered view, the additions made by the AO is on the basis of unsubstantiated facts. Therefore, we direct AO to delete the additions made u/s. 68 of the Act. Addition with respect to cash estimate on account of scrap sale - We noticed that AO applied presumption and assumptions to bring cash components in the scrap sale of all the units even though nothing was found during search in other units, which are part of search operation. In our considered view, the AO and CIT(A) has sustained the addition merely on assumptions without their any evidence to show that assessee has not declared the cash sales in all the units. Therefore, we are directing AO to sustain the addition made only on the scrap sales recorded in the Abu Road unit only for the AYs 2014-15 and 2015-16. Accordingly, the grounds raised by the assessee are partly allowed.
Issues Involved:
1. Addition of ?8,12,00,000/- under Section 68 of the Income-tax Act, 1961. 2. Addition with respect to unaccounted income from scrap sales. Detailed Analysis: 1. Addition of ?8,12,00,000/- under Section 68 of the Income-tax Act, 1961: Background: The Assessee, an unlisted public company engaged in manufacturing laminated flexible packing material, was subjected to a search and seizure action under Section 132 of the Income-tax Act on 8th May 2014. The Assessing Officer (AO) issued notices under Section 153A for assessment years 2009-10 to 2014-15. The AO treated the share capital and premium received by the Assessee as unexplained cash credit under Section 68, alleging that the funds were routed through shell companies. Findings of the AO: - The AO relied on a report from the Deputy Director of Income-tax (Investigation), Kolkata, which suggested that the companies investing in the Assessee were engaged in off-market transactions and lacked sufficient profit. - Multiple companies were operating from the same address, indicating they were shell companies. - The AO noted no cash transactions in the accounts of the investee companies. CIT(A) Decision: - The CIT(A) upheld the addition for assessment years 2009-10 to 2012-13, stating that incriminating material was found during the search. - The CIT(A) observed that the Assessee failed to establish the genuineness and creditworthiness of the investing companies. Assessee's Arguments: - The Assessee argued that no incriminating material was found during the search for assessment years 2009-10 to 2012-13, and hence, no addition could be made under Section 153A. - The Assessee provided detailed submissions to establish the identity, genuineness, and creditworthiness of the investing companies. - The Assessee contended that the investigation wing's report was based on post-search inquiries and could not be considered incriminating material. ITAT Decision: - The ITAT observed that no incriminating material was found during the search for assessment years 2009-10 to 2012-13, and the AO relied on information from the investigation wing obtained post-search. - The ITAT held that the assessment for these years was invalid as no incriminating material was found, and hence, no addition could be made under Section 68. - For assessment years 2013-14 and 2014-15, the ITAT noted that the Assessee had proved the identity, creditworthiness, and genuineness of the transactions. The investments were made through regular banking channels, and no cash transactions were involved. - The ITAT directed the AO to delete the additions made under Section 68 for all assessment years. 2. Addition with respect to unaccounted income from scrap sales: Background: During the search, loose papers were found at one of the Assessee's units (Abu Road), indicating receipt of cash for scrap sales. The AO assumed that all scrap sales across all units and years had a cash component of 40.50% and made additions accordingly. CIT(A) Decision: - The CIT(A) deleted the additions for assessment years 2009-10 to 2013-14. - For assessment years 2014-15 and 2015-16, the CIT(A) reduced the additions by 25%. Assessee's Arguments: - The Assessee argued that the addition was based on assumptions and not supported by any evidence. - The Assessee contended that only the Abu Road unit had evidence of cash transactions, and no such evidence was found for other units. ITAT Decision: - The ITAT observed that the AO's assumption of a cash component in all scrap sales was not supported by evidence. - The ITAT directed the AO to sustain the addition only for the scrap sales recorded in the Abu Road unit for assessment years 2014-15 and 2015-16. Conclusion: The ITAT partly allowed the appeals filed by the Assessee, directing the deletion of additions made under Section 68 for all assessment years and restricting the addition for unaccounted scrap sales to the Abu Road unit for assessment years 2014-15 and 2015-16. The order was pronounced on 05.01.2022.
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