2022 (12) TMI 346 - AT - Income Tax

Assessment u/s 153A - unsecured loan taken by the assessee - addition u/s 68 treating the unsecured loan as non genuine loan - addition on account of alleged commission paid u/s 69C - Addition basis of the statement of third party - HELD THAT - AO in remand report observed that there is no incriminating documents found during the course of search has also been accepted by the CIT (A). AO observed that Gemini Commerce Pvt. Ltd. is the shell providing accommodation to various persons and in view of the statement of Arpit Khandenwal recorded u/s 132(4) of the Act the assessee contended that no question was asked regarding the list and advances made by Gemini Commerce Pvt. Ltd. to the assessee and that Arpit Khandenwal in his statement as never stated that Gemini Commerce Pvt. Ltd. is a shell company and providing only accommodation entries to various persons in the case to guise unsecured loans. The statement of Arpit Khandenwal if found correct then no question was asked to Arpit Khandenwal in his statement regarding providing entry to various persons in cash of loans and he never even admitted that Gemini Commerce Pvt. Ltd. is shell company. We are of the opinion that on the basis of the statement of Arpit Khandelwal and Harsh Agrawal the AO has no jurisdiction to make the additions and that in the proceedings u/s 153A of the Act when the assessment was not pending. The Assessing Officer failed to note that merely on the statement without any corroborative evidence to a conclusion that the AO to make the addition which is not sustainable in law. When the Assessing Officer and ld. CIT(A) has accepted that the assessments were completed and books of account were verified, returns were filed, the entire record are persuaded by the AO and the ld. CIT(A) when there is no incriminating material found then the statements recorded during the assessment proceedings has no evidentiary value when it is not supported with corroborative evidences. Assessee has made the submissions which are supported by M/s Mantri Share Brokers (P) Ltd. in 2017 (9) TMI 1668 - RAJASTHAN HIGH COURT Subsequently the SLP filed by the Revenue against the said judgment has been dismissed by the Hon ble Supreme Court 2018 (7) TMI 200 - SC ORDER Whereas, the ld. DR has supported his submissions by the Hon ble Supreme Court in the case of Bannalal Jat Constructions (P) Ltd. 2019 (7) TMI 137 - SC ORDER and in jurisdictional High Court decision in the case of Pr.CIT vs. Roshan Lal Sancheti 2018 (11) TMI 953 - RAJASTHAN HIGH COURT We have noted that the facts of the case law relied upon by the ld. DR are on the facts difference with the case of the assessee. The fact remains that the Revenue itself is not disputing that in respect of the unsecured loan taken by the assessee no incriminating documents were found in the search proceedings and the finding of the ld. CIT(A) on this very fact is not challenged before us in any of the grounds raised by the revenue. The requirement that the incriminating material to have the co-relation to the particular addition sought to be made is a logic that will hold good not only for Section 153 C of the Act but in relation to Section 153A of the Act as well. No error having been committed by the ld. CIT(A) in accepting the plea of the Assessee that there is no incriminating document which was seized in the course of search relating to the addition sought to be made on account of the unsecured loan accepted and reflected in the return of income filed by the assessee. Therefore, the jurisdictional requirement of Section 153A of the Act was not satisfied. - Decided in favour of assessee.

Summary

Issues Involved:
1. Legality of additions under section 153A of the Income Tax Act, 1961.
2. Validity of additions without incriminating material.
3. Evaluation of unsecured loans and alleged shell companies.
4. Admissibility of statements recorded during search as incriminating evidence.
5. Jurisdictional limitations on reassessment of completed assessments.

Detailed Analysis:

1. Legality of Additions under Section 153A:
The primary issue revolves around whether additions can be made under section 153A for assessments completed prior to the date of search. The Revenue contends that the Assessing Officer (AO) has the authority to reassess the total income for six preceding years, irrespective of whether incriminating material was found during the search. The Tribunal, however, holds that additions under section 153A can only be based on incriminating material unearthed during the search.

2. Validity of Additions without Incriminating Material:
The Tribunal emphasizes that no additions can be made in proceedings under section 153A for assessments completed before the search date unless based on incriminating material found during the search. This is supported by various judicial precedents, including decisions from the Hon'ble Delhi High Court and the Hon'ble Supreme Court. The Tribunal notes that the AO's addition of Rs. 22,16,60,000/- as unsecured loans from M/s Gemini Commerce Pvt. Ltd. was not based on any incriminating material found during the search.

3. Evaluation of Unsecured Loans and Alleged Shell Companies:
The AO treated the unsecured loan from M/s Gemini Commerce Pvt. Ltd. as non-genuine, based on the company's classification as a shell company by the Serious Fraud Investigation Office (SFIO) and statements from its directors. However, the Tribunal finds that the assessee provided sufficient documentary evidence to substantiate the genuineness of the loan transactions, including confirmations, bank statements, and income tax returns of the lender company. The Tribunal criticizes the AO for not conducting further inquiries or cross-verifying the evidence provided by the assessee.

4. Admissibility of Statements Recorded During Search as Incriminating Evidence:
The Tribunal addresses the Revenue's reliance on statements recorded during the search, particularly from Shri Arpit Khandelwal and Shri Harsh Agrawal, to support the addition. The Tribunal finds that these statements alone, without corroborative evidence, cannot be considered incriminating. It emphasizes that the AO and the Principal Commissioner of Income Tax (Pr.CIT) had accepted that no incriminating material was found during the search, further weakening the basis for the additions.

5. Jurisdictional Limitations on Reassessment of Completed Assessments:
The Tribunal reiterates that completed assessments can only be interfered with under section 153A based on incriminating material found during the search. It references the legal position established by the Hon'ble Delhi High Court in CIT vs. Kabul Chawla, which holds that in the absence of incriminating material, the completed assessment can be reiterated, and only the abated assessment or reassessment can be made. The Tribunal concludes that the AO overstepped jurisdictional boundaries by making additions without any incriminating material.

Conclusion:
The Tribunal dismisses the Revenue's appeals, upholding the order of the Commissioner of Income Tax (Appeals) [CIT(A)] which deleted the additions made by the AO. The Tribunal emphasizes the necessity of incriminating material for additions under section 153A in cases of completed assessments and criticizes the AO for relying on statements without corroborative evidence. The Tribunal's decision is based on a thorough examination of legal precedents and the specific facts of the case, reinforcing the principle that reassessment under section 153A must be grounded in material evidence unearthed during the search.