2023 (2) TMI 127 - HC - Income Tax

Assessment u/s 153A - Addition u/s 68 - Failure to prove the identity and creditworthiness of the aforementioned company - incriminating material as found during the course of search or not? - HELD THAT - Assessment under Section 153A of the Act had been made on the basis of the books of account of the Assessee without referring to any material found during the course of search. Relying on the decision of the High Court of Delhi in CIT (Central)-III v. Kabul Chawla 2015 (9) TMI 80 - DELHI HIGH COURT additions could not be sustained. Decided in favour of the Assessee and against the Department.

Summary

Issues:
1. Whether additions made under Section 68 of the Income Tax Act were sustainable without search material?
2. Validity of the order passed by the Income Tax Appellate Tribunal (ITAT) in favor of the Assessee for the Assessment Year 2008-09.

Analysis:
1. The case involved a dispute regarding unexplained cash credit received by the Assessee from a Kolkata-based company, alleged to be a bogus entity. The Assessing Officer (AO) made an addition of Rs.4,85,15,000 under Section 68 of the Act, as the Assessee failed to prove the identity and creditworthiness of the creditor. The Commissioner of Income Tax (Appeals) affirmed the addition. However, the Assessee contended before the ITAT that the additions were unsustainable as they were not based on any search material. The ITAT referred to various High Court judgments and held that additions under Section 153A of the Act could only be made based on incriminating materials found during the search. As the Department failed to provide any material unearthed during the search to show that the advances were not genuine, the ITAT allowed the Assessee's appeal.

2. The High Court considered the arguments presented by the Department citing various precedents but noted that those cases did not address the specific scenario of an assessment under Section 153A without any incriminating material found during the search. Relying on the settled legal position and the reasoning provided by the ITAT, the Court upheld the decision in favor of the Assessee. The Court emphasized that in the absence of any incriminating material, the additions made under Section 68 were not sustainable. Therefore, the Court dismissed the appeal by the Revenue, affirming the ITAT's order in favor of the Assessee for the Assessment Year 2008-09.