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2023 (3) TMI 86 - AT - Income TaxAssessment u/s 153A - unexplained cash deposits u/s 68 - AO s observation that some of the CD-Drives containing KYC documents were not working - second search action conducted u/s 132 - whether the unabated assessment could have been disturbed by the AO in absence of incriminating material seized in the course of search so as to make additions u/s 68? - HELD THAT - We find merit in the submissions of assessee that these twelve (12) statements of the account-holders did not contain anything which incriminated the assessee society or which would suggest that the cash deposited with the assessee society by these account holders represented its own unaccounted monies. Even if these statements are considered at their face value, it is noted that some individuals were taking advantage of the absence of reporting compliances on the assessee society to route their own unaccounted monies and even the ultimate beneficiaries had been named by these account-holders and identified by the authorities as well. On these facts, we find merit in the assessee society s contention that these twelve (12) statements did not contain any incriminating material which could be used to disturb the finality of these unabated AYs and justify the additions made by the AO u/s 68 Improper KYC documentation - AO had prima facie stated that KYC compliance was done by the assessee at the time of opening the accounts in these two AYs. In our considered view therefore, in the facts and circumstances discussed instances of improper KYC documentation if any noted in second search cannot constitute incriminating material found in the course of first search so as to make additions in the impugned unabated AYs. Report of Ld. DDIT(I CI) - Only if the Revenue demonstrates that some material or document or evidence was unearthed in the course of search or that some incriminating statement was obtained in the course of search, which supported the findings of this verification report, only then such verification report could have been used to disturb the finality of the unabated assessments. The Revenue, however, has been unable to do so in the present case. In our considered view therefore, this verification report on its own cannot be said to be incriminating material unearthed in the course of search. As showed during the relevant FY 2009-10 there were no RTGS made by any of the members of the assessee society and therefore this report was of no relevance in the relevant AY. Hence, we find merit in the Ld. AR s contention that the Ld. CIT(A) s reliance on this report to justify the impugned additions in the unabated AYs 2010-11 2011-12 was factually misplaced. The contents of the report shows that the Ld. DDIT(I CI) had observed that these account holders were depositing large sums of cash on different dates in the accounts held by them with the assessee society, which was in turn being routed to different firms by way of RTGS who were the ultimate beneficiaries of these deposits and had failed to disclose the same in their respective tax returns. DDIT(I CI) observed that by taking advantage of the absence of reporting liabilities, these societies were being used as a conduit for money laundering. One of the ten persons viz., Mr. R.A. Shah from whom enquiries were made had admitted that he had not disclosed his account in his tax return and accordingly revised his return of income and paid taxes thereon. On these facts, we are unable to countenance the action of Ld. CIT(A) seeking to justify the additions by way of unexplained monies being made u/s 68 of the Act in the hands of the assessee society, based on this spot verification report which does not incriminate the assessee qua the cash deposits made by these depositors qua these relevant AYs in these appeals. To substantiate the bonafides of the assessee society, the Ld. AR showed that the assessee had suo moto written several petitions to the Financial Intelligence Unit (FIU-IND) much prior to the date of search on 09.02.2016 viz., between July 2014 to June 2016 wherein they had time and again requested them to register them with FIU-IND so that they could share the details information of their members with the concerned Department. He showed us that, it was only vide Circular dated 08-01-2018 that the multi-state cooperative societies were brought within the purview of PMLA Act, 2002 and all multi-state cooperative societies were required to register themselves with the Department. Before us, the Revenue was unable to bring any material on record to controvert the aforesaid submissions of the assessee society. On the overall conspectus of the facts, we thus hold that the reasoning given by the Ld. CIT(A) viz., existence of incriminating material statements against the assessee society, to justify the validity of the additions made in the unabated assessments framed u/s 153A/143(3) of the Act for AY 2010-11 was untenable both on facts and in law. Disallowance of interest administrative expenses u/s 69C - As per CIT-A there was no incriminating material found in the course of search which suggested that these expenses were unaccounted for - HELD THAT - CIT(A) has rightly observed that these expenses were recorded in the regular books of the assessee and therefore invocation of Section 69C - there was no incriminating material qua the assessee which would justify the additions made by the AO in the unabated AY 2010-11. AO is accordingly directed to delete the same. Therefore, the ground of appeal of the assessee stands allowed.
Issues Involved:
1. Validity of assessment under Section 153A of the Income-tax Act, 1961 in the absence of incriminating material. 2. Addition of deposits made by members as unexplained cash credit under Section 68 of the Act. 3. Disallowance of expenditure under Section 69C of the Act. 4. Rejection of claim for deduction under Section 80P(2)(a) of the Act. Detailed Analysis: 1. Validity of Assessment under Section 153A: The Tribunal noted that the assessment for AY 2010-11 was unabated on the date of search. The legal principle established by various High Courts, including the jurisdictional Bombay High Court, is that in the case of unabated assessments, additions can only be made if incriminating material is found during the search. The Tribunal found that the AO did not rely on any incriminating material unearthed during the search but rather on a report obtained during the assessment proceedings. The Tribunal concluded that the ITI report, obtained after the search, could not be considered incriminating material to justify additions in unabated assessments. 2. Addition of Deposits as Unexplained Cash Credit under Section 68: The AO had made an addition of Rs. 577.23 crores as unexplained cash credits based on the ITI report and statements of some account holders. The Tribunal found that the statements of the twelve account holders from the Raipur Branch were not relevant for AYs 2010-11 and 2011-12 as the branch was opened only in AY 2015-16. The Tribunal also noted that the ITI report was factually incorrect and did not constitute incriminating material. The Tribunal concluded that the AO's reliance on the ITI report and the statements of account holders was unjustified, and the addition under Section 68 was not sustainable. 3. Disallowance of Expenditure under Section 69C: The AO had disallowed interest and administrative expenses of Rs. 9.24 crores under Section 69C, treating them as unexplained. The Tribunal found that these expenses were duly recorded in the regular books of accounts and there was no incriminating material found during the search to suggest that these expenses were unaccounted. The Tribunal upheld the CIT(A)'s finding that the invocation of Section 69C was incorrect and directed the AO to delete the disallowance. 4. Rejection of Claim for Deduction under Section 80P(2)(a): The CIT(A) had rejected the assessee's claim for deduction under Section 80P(2)(a) on the grounds that the assessee had violated the principles of mutuality and was involved in giving accommodation cheques. The Tribunal did not specifically address this issue as it rendered the other grounds academic in nature. Conclusion: The Tribunal allowed the assessee's appeals for AYs 2010-11 and 2011-12, holding that there was no incriminating material to justify the additions made by the AO in the unabated assessments. The appeals of the Revenue were dismissed as infructuous. The Tribunal's order was based on the specific facts and circumstances of the case and should not be taken as a precedent.
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