2022 (9) TMI 464 - AT - Income Tax

Assessment u/s 153A - Addition of gross profit on unrecorded sales - HELD THAT - As on the date of search the assessment in the case of the assessee are unabated, then, in absence of any incriminating material surfacing in respect of the said year, no addition could validly be made by the A.O while framing the assessment u/s.153A - See SMT. SANJANA MITTAL 2019 (3) TMI 1757 - ITAT AMRITSAR , KABUL CHAWLA 2015 (9) TMI 80 - DELHI HIGH COURT , M/S. MURLI AGRO PRODUCTS LTD. 2010 (10) TMI 1052 - BOMBAY HIGH COURT and CONTINENTAL WAREHOUSING CORPORATION (NHAVA SHEVA) LTD., ALL CARGO GLOBAL LOGISTICS LTD. 2015 (5) TMI 656 - BOMBAY HIGH COURT observed, that where as on the date of the initiation of search and seizure proceedings under section 132 of the Act, no assessment proceedings for the year under consideration were pending, then, in the absence of any incriminating evidence found during the course of search and seizure proceedings no addition/disallowance could have been made in respect of the unabated assessment of the assessee for the said year. Thus we concur with the claim of the Ld. AR that now when as on the date of the initiation of search and seizure proceedings under section 132 of the Act as no assessment or reassessment proceedings for the years under consideration were pending in its case for AY 2006-07 to AY 2010-11, therefore, in the absence of any incriminating evidence found during the course of search and seizure proceedings for the said years, no addition/disallowance could have been made in respect of the unabated assessment of the assessee for the said respective years. Unexplained cash credits u/s.68 - When the assessee had discharged the onus that was cast upon it as regards proving the identity and creditworthiness of the share applicant companies, as well as the genuineness of the transactions in question, therefore, no addition of the amounts so received from them could have been made by dubbing the same as unexplained cash credits u/s.68 of the Act, uphold his order to the said extent. The Grounds of appeal of revenue dismissed. Addition on account of initial unrecorded investment for making unrecorded sales - HELD THAT No infirmity in the view taken by the CIT(A) who by way of a well reasoned order vacated the additions made by the A.O towards unaccounted income arising from the alleged undisclosed sales for AY 2006-07 to AY 2012-13; as well as the addition of the unexplained investment for carrying out undisclosed sales in A.Y.2006-07 to A.Y.2012-13, uphold her order to the said extent.

Summary

Issues Involved:
1. Deletion of additions on account of gross profit on unrecorded sales.
2. Deletion of additions on account of initial unaccounted investment.
3. Deletion of additions on account of share application/capital received as unexplained cash credits under Section 68.
4. Jurisdiction of the Assessing Officer (AO) under Section 153A.
5. Validity of the assessment framed by the AO as per directions of the Investigation Wing.

Detailed Analysis:

1. Deletion of Additions on Account of Gross Profit on Unrecorded Sales:
The AO inferred unrecorded sales based on torn pieces of paper allegedly retrieved from a dustbin during search proceedings, which were claimed to show sales of Rs.67,98,08,605 for FY 2011-12. The AO extrapolated this to estimate unrecorded sales for previous years and applied an average GP rate of 8.85% to determine unaccounted income. The CIT(A) vacated these additions, noting that:
- The torn papers were not listed in the inventory of seized documents.
- The papers could not be reconstructed even after extensive efforts, making their contents unreadable.
- No unrecorded assets or investments were found during the search to corroborate the AO's claims.
- The extrapolation of sales figures was deemed unjustified and unsupported by any substantial evidence.

The Tribunal upheld the CIT(A)'s decision, agreeing that the torn papers lacked evidentiary value and that the extrapolation of sales was baseless.

2. Deletion of Additions on Account of Initial Unaccounted Investment:
The AO had added Rs.34,79,761 as initial unaccounted investment for making unrecorded sales in AY 2006-07. The CIT(A) vacated this addition, reasoning that:
- The basis for the addition was the same torn papers, which lacked credibility.
- No substantial evidence was provided to support the claim of initial unaccounted investment.

The Tribunal concurred with the CIT(A), finding no merit in the AO's addition based on the unreliable torn papers.

3. Deletion of Additions on Account of Share Application/Capital Received as Unexplained Cash Credits Under Section 68:
The AO treated share application money received from certain companies as unexplained cash credits. The CIT(A) noted that:
- The share application money was scrutinized and accepted in original assessments under Section 143(3).
- The assessee provided comprehensive documentation, including names, addresses, PANs, financial statements, and bank statements of the share applicants.
- The AO failed to disprove the documentary evidence provided by the assessee.

The Tribunal upheld the CIT(A)'s decision, emphasizing that the assessee had discharged its onus to prove the identity, creditworthiness, and genuineness of the transactions. The Tribunal also noted that the amendment to Section 68 requiring explanation of the source of funds from the investor company was applicable from AY 2013-14 and not relevant for the years under consideration.

4. Jurisdiction of the AO Under Section 153A:
The assessee argued that no additions could be made for AY 2006-07 to AY 2010-11 as no incriminating material was found during the search. The Tribunal agreed, citing judicial precedents that no additions could be made in respect of unabated assessments in the absence of incriminating evidence found during the search.

5. Validity of the Assessment Framed by the AO as per Directions of the Investigation Wing:
The assessee contended that the AO acted under the directions of the Investigation Wing, compromising the independence of the assessment. The Tribunal found that the assessment was indeed influenced by the Investigation Wing, as evidenced by the "Office Note" indicating that the AO's deviations were not accepted by the Investigation Wing. However, since the Tribunal upheld the CIT(A)'s deletion of the additions on other grounds, it did not further adjudicate this issue.

Conclusion:
The Tribunal dismissed the revenue's appeals and upheld the CIT(A)'s order, which vacated the additions made by the AO. The Tribunal also allowed the assessee's cross-objections, emphasizing the lack of incriminating evidence and the improper influence of the Investigation Wing on the AO's assessment.