2022 (9) TMI 460 - AT - Income Tax

Assessment u/s 153A - unexplained cash credit due to bogus share capital - Proof of incriminating material for the purpose of doing assessment u/s.153A - HELD THAT - The facts in the present case shows that by treating the share application money received by the assessee as unexplained cash credit, the revenue is not explaining as to what happens to the value of the shares, as the shares are out of the control of the assessee. Shares have gone into the open market, it has intrinsic value. In short, if the share capital received by the assessee is treated as its income, it is in effect forcing the assessee to reduce its capital value and by maintaining the number of shares which stands allotted. Keeping this in mind when one see the assessment framed u/s.153A, what is noticed is that there is no evidence in any manner whatsoever which has been found in the course of search, which could even lead to presumption much less reveal that any income much less represented in the form of asset, has escaped assessment for the relevant assessment year, which could give power to the AO to extend the provisions of section 153A for a period of ten years. In the absence of such evidence, which could reveal escapement of income from the assessment for the relevant assessment year having been found in the course of search, the initiation of proceedings u./s.153A for the relevant assessment year is not permissible and consequently, same is liable to be quashed and we do so. Findings of the CIT(A) that no incriminating material has been found in the course of search and consequently quashing of the assessment proceedings, the facts in the present case clearly show that the assessee has filed his return of income for the relevant assessment year and said return has also been processed u/s.143(1) - The time limit of issuance of notice u/s.143(2) of the Act as also for the purpose of reopening of the assessment has expired. Consequently, the intimation issued in the case of the assessee u/s.143(1) would have to be deemed to be completed assessment proceedings and in view of the decision of Param Diary ltd 2021 (2) TMI 764 - DELHI HIGH COURT wherein as followed its own decision in the case of Chintels India ltd., 2017 (7) TMI 746 - DELHI HIGH COURT has held that once the assessee does not receive notice u/s.143(2) within the stipulated period, such an assessee take it that the return filed by him has became final and no scrutiny proceedings are to be undertaken with respect to that return. Thus, in the case of the assessee, the intimation having been issued u/s.143(1) of the Act, and in view of the principles laid down by the Hon ble Delhi High Court in the case of Kabul Chawla 2015 (9) TMI 80 - DELHI HIGH COURT and in the case of Meeta Gutgutia 2017 (5) TMI 1224 - DELHI HIGH COURT as no incriminating material has been found which could show escapement of income in the case of the assessee in the relevant assessment year, no assessment u/s.153A could be done on the assessee. A perusal of the decision of Kurele Paper Mills Pvt Ltd 2015 (9) TMI 115 - DELHI HIGH COURT shows that this was also a case of share application money and in that case also no incriminating material was found and consequently, the Hon ble Delhi High Court quashed said proceedings u/s.153A - as the facts clearly reveal that no incriminating materials have been found in the course of search, which could lead to the AO to initiate the proceedings u/s.153A. Consequently, we are of the view that the findings of the ld CIT(A) on this issue is on right footing and does not call for any interference. Non-availability of incriminating material found in the course of search for the purpose of invoking provisions of section 153A - As in the relevant assessment year.alternative prayer of the revenue is nothing but the arguments against the findings of the ld CIT(A) that no incriminating material has been found in the course of search for invoking section 153A. Thus, it cannot be treated as alternate argument but it is only an additional arguments by the revenue. Coming to the issue that counter judgments are available in respect of incriminating material, we are bound by the proposition laid down in the case of Vegetable Products 1973 (1) TMI 1 - SUPREME COURT wherein, held that when two views are possible, the view in favour of the assessee should be follows.

Summary

Issues Involved:
1. Deletion of addition of Rs. 3.75 crores as unexplained cash credit due to bogus share capital.
2. Deletion of addition of Rs. 1,57,169/- under section 40A(3) of the Income Tax Act.
3. Validity of assessment under section 153A of the Income Tax Act in the absence of incriminating material.

Issue-wise Detailed Analysis:

1. Deletion of Addition of Rs. 3.75 Crores as Unexplained Cash Credit Due to Bogus Share Capital:
The revenue contended that the CIT(A) erred in deleting the addition made by the AO of Rs. 3.75 crores as unexplained cash credit due to bogus share capital. The AO based the addition on seized material indicating investments with huge premiums in share capital by Kolkata-based companies, which were later transferred to related parties of the assessee company at face value. The CIT(A) quashed the assessment by following the decision of the Delhi High Court in CIT vs. Kabul Chawla, holding that no incriminating material was found during the search to justify the addition under section 153A.

The assessee argued that the ledger showing share application money was part of regular books of account and not incriminating material. The assessee had filed returns for the relevant assessment year, and the time limit for issuing notice under section 143(2) and reopening the assessment had expired. Therefore, the intimation under section 143(1) should be treated as a completed assessment, limiting the scope of section 153A to only incriminating material.

The Tribunal upheld the CIT(A)'s decision, stating that no evidence was found during the search to indicate that income represented in the form of assets had escaped assessment. The Tribunal emphasized that the ledger account was part of the regular books of account and not incriminating material. Consequently, the initiation of proceedings under section 153A was not permissible, and the assessment was quashed.

2. Deletion of Addition of Rs. 1,57,169/- under Section 40A(3):
The revenue argued that the CIT(A) erred in deleting the addition made under section 40A(3) for cash payments exceeding the prescribed limit. The CIT(A) held that no incriminating material was found during the search to justify the addition. The Tribunal, having quashed the assessment under section 153A on other grounds, dismissed this issue as well, stating it no longer survived.

3. Validity of Assessment under Section 153A in the Absence of Incriminating Material:
The revenue contended that the CIT(A) failed to appreciate that the Delhi High Court's decision in Kabul Chawla did not provide a blanket direction that incriminating materials must be there for invoking section 153A. The revenue cited various High Court decisions supporting the view that the AO can make additions even without incriminating material found during the search.

The assessee argued that no incriminating material was found during the search, and the ledger account was part of regular books of account. The Tribunal referred to multiple decisions, including those of the Delhi High Court and Kolkata Tribunal, supporting the view that in the absence of incriminating material, the assessment under section 153A should be limited to the material found during the search.

The Tribunal concluded that no incriminating material was found during the search to justify the initiation of proceedings under section 153A. The Tribunal upheld the CIT(A)'s decision, quashing the assessment on the grounds that no evidence of escapement of income was found during the search, and the extended period of 10 years for invoking section 153A was not available.

Conclusion:
The Tribunal dismissed the revenue's appeal, upholding the CIT(A)'s decision to quash the assessment under section 153A due to the absence of incriminating material. The cross-objection filed by the assessee was also dismissed as not pressed.