2024 (2) TMI 222 - AT - Income Tax

Assessment u/s 153A - Addition u/s 68 on unexplained cash credit - incriminating material found in search or not? - upon perusal of the documents found during the course of the search, the AO noted that the assessee is not following the rules and regulations of KYC and other guidelines as stipulated by the Reserve Bank of India - HELD THAT - In the present case, it is worth noting that the assessee received the money in the normal course of its business as a co-operative credit society, i.e. through repayment of loans by its members or deposits by its members, etc. Further, it is not disputed that the assessee has duly recorded in its books of account the transactions of collections of money as well as deposits made into its bank account. The violation of provisions of Rule 114B by the depositors in certain cases and Rule 114E by the assessee also cannot lead to the conclusion that the money deposited in the members account belongs to the assessee. Further, in the post-search enquiry also no material or evidence was found which could lead to the conclusion that the money deposited belongs to the assessee. In the present case, it is not the plea of the Revenue that the credit in books of account or bank accounts of the assessee came to its knowledge pursuant to the material/documents found during the course of the search. For discrepancies in maintaining KYC documentation, account opening form, and violation of society byelaws, action can be taken against the assessee under the relevant statute or by the concerned authority, such as RBI, however, the same cannot lead to an addition in the hands of the assessee under the Act. Therefore, we are of the considered view that the material/documents found during the course of the search are not of such a nature which incriminates or militates against the assessee - material/documents found during the course of search also do not raise any doubt or suspicion against the assessee, and if at all the material/documents may only incriminate against the members in whose account the money was deposited. We find that in certain cases proceedings under the Act were initiated against the members on the basis of material/documents found during the course of the search and survey at assessee s premises. Thus, from the above, it is established that the material/documents found during the course of search are not incriminating in nature. Therefore, the AO could not have made any addition under section 153A of the Act in respect of concluded/unabated assessments for the assessment years 2012-13 to 2015-16. Accordingly, the additions made by the AO are deleted. Decided in favour of assessee.

Summary

Issues Involved:
1. Jurisdictional Issue regarding the abatement of assessment.
2. Validity of additions made under section 68 of the Income Tax Act.
3. Compliance with KYC norms and other regulations.
4. Disallowance of various provisions and expenses.
5. Deduction under section 80P of the Income Tax Act.

Summary:

1. Jurisdictional Issue:
The primary jurisdictional issue raised by the assessee was that since the assessments for the years 2012-13 to 2015-16 were concluded before the date of the search, they were not abated as per the second proviso to section 153A of the Income Tax Act. Hence, no additions could be made in the absence of any incriminating material found during the search. The Tribunal noted that the Hon'ble jurisdictional High Court in *CIT v/s Continental Warehousing Corporation (Nhava Sheva) Ltd.* and the Hon'ble Supreme Court in *PCIT v/s Abhisar Buildwell (P.) Ltd.* affirmed that no addition can be made in respect of assessments which have become final if no incriminating material is found during the search.

2. Validity of Additions under Section 68:
The Assessing Officer (AO) made additions under section 68 of the Act, citing non-compliance in maintaining proper KYC documents and other discrepancies. However, the Tribunal held that the materials found during the search, such as incomplete KYC documents, did not constitute "incriminating material." The Tribunal emphasized that incriminating material should prima facie prove undisclosed income, which was not the case here. Therefore, the additions made by the AO for the assessment years 2012-13 to 2015-16 were deleted.

3. Compliance with KYC Norms and Other Regulations:
The AO noted several discrepancies in KYC documentation and account opening forms, and non-compliance with Rule 114B regarding cash deposits. The learned CIT(A) also observed these discrepancies but concluded that the entire transactions could not be added as income of the assessee. The Tribunal agreed that the deficiencies noted did not amount to incriminating material against the assessee.

4. Disallowance of Various Provisions and Expenses:
The AO made additions on account of provision for standard assets, provision for gratuity, prior period expenses, and disallowances under section 40A(3) and section 40(a)(ia) of the Act. The learned CIT(A) granted partial relief to the assessee on these issues. The Tribunal did not delve into these matters as the primary jurisdictional issue was decided in favor of the assessee.

5. Deduction under Section 80P:
The AO disallowed the deduction claimed under section 80P of the Act, which was upheld by the learned CIT(A). However, the Tribunal did not address this issue separately as the primary jurisdictional issue rendered the other grounds academic.

Conclusion:
The Tribunal allowed the appeals by the assessee for the assessment years 2012-13 to 2015-16, deleting the additions made by the AO, and dismissed the appeals by the Revenue as infructuous. The order was pronounced in the open Court on 31/01/2024.