2024 (7) TMI 351 - HC - Income Tax

Assessment u/s 153A - Addition of undisclosed income - assessee entered into a contract with a non-resident entity CMF for sharing of profits in lieu of services to CMF on supply of currency paper by CMF to Reserve Bank of India RBI including its subsidiaries - incriminating material found during the search and seizure operation or not? - AO observed that assessee continued to receive commissions from CMF through other foreign entities of CMF s parent group and since CMF does not have any other agent in India for supply of currency notes, therefore, the said amount was received pursuant to that agreement only HELD THAT - It is imperative to point out that the agreement between the assessee and the CMF was terminated on 31.12.2012 and since AY 2015-16 onwards, the assessee has become a non-resident. It is also pertinent to iterate that as per the dictum laid down by this Court in Kabul Chawla 2015 (9) TMI 80 - DELHI HIGH COURT it is a settled position of law that the Revenue cannot be permitted to sustain any addition in the absence of any incriminating material for that relevant AY. Undeniably, it becomes evident from a perusal of the factual matrix of the case that all the receipts with respect to transactions with foreign entities pertain to AYs 2016-17 and 2017-18. Thus, the ITAT has rightly deleted the additions pertaining to AYs 2012-13 to 2015-16 based on the settled legal position as enunciated above. Regarding incriminating material unearthed during the course of the search operation, it is apposite to elucidate that the agreement between the assessee and CMF was already in the knowledge of the Revenue and the commission received by the assessee pursuant to that agreement was duly reflected in his ITR. Additionally, the ITAT has rightly concluded that on the conspectus of the replies furnished by the assessee and the factual matrix of the case, the Revenue was not able to show any indelible link that the payments received from the foreign entities were in relation to the agreement between CMF and the assessee for supply of banknote paper in India. The aforementioned rationale also finds mention in the ITAT order, which was impugned before us. We come to the conclusion that the instant appeals do not raise any substantial questions of law which would merit consideration and thus, we find no reason to interfere with the judgement rendered by the ITAT.

Issues Involved:
1. Validity of the additions made by the Assessing Officer (AO) for Assessment Years (AYs) 2012-13 to 2017-18.
2. Legality of the Income Tax Appellate Tribunal's (ITAT) decision to delete the additions for AYs 2012-13 to 2015-16.
3. Consideration of incriminating material found during the search and seizure operation.
4. Application of the legal precedents set by the High Court and Supreme Court regarding Section 153A of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Validity of the Additions Made by the AO for AYs 2012-13 to 2017-18:
The AO added certain amounts as undisclosed income for AYs 2012-13 to 2017-18 based on the rationale that the assessee continued to receive commissions from CMF through other foreign entities of CMF’s parent group. The AO argued that since CMF did not have any other agent in India for the supply of currency notes, the said amount was received pursuant to the agreement between the assessee and CMF, which was terminated on 31.12.2012. The AO's additions were based on the assumption that the assessee was still receiving commissions despite the termination of the agreement.

2. Legality of the ITAT's Decision to Delete the Additions for AYs 2012-13 to 2015-16:
The ITAT deleted the additions for AYs 2012-13 to 2015-16, holding that the Revenue could not show any indelible link that the payments received from foreign entities were in relation to the agreement between CMF and the assessee for the supply of banknote paper in India. The ITAT also noted that the agreement between the assessee and CMF was already in the knowledge of the Revenue, and the commission received was duly reflected in the assessee's Income Tax Return (ITR). The ITAT concluded that the Revenue's case was based on hypothetical presumptions without any concrete evidence.

3. Consideration of Incriminating Material Found During the Search and Seizure Operation:
During the search and seizure operation conducted on 26.12.2016, a copy of the agreement between the assessee and CMF was found. The Revenue argued that incriminating materials, including email exchanges and the agreement, showed that the assessee was planning to evade taxes in India. However, the ITAT and subsequently the High Court found that the material recovered was not incriminating as it was already in the knowledge of the Revenue. The High Court reiterated that in the absence of any incriminating material, the completed assessment could not be interfered with.

4. Application of Legal Precedents Set by the High Court and Supreme Court Regarding Section 153A of the Income Tax Act:
The High Court referred to the legal position established in CIT (Central)-III v. Kabul Chawla and Principal Commissioner of Income Tax, Central – 3 v. Abhisar Buildwell Private Limited. These judgments clarified that additions could not be made in respect of completed assessments in the absence of any incriminating material. The court emphasized that the Revenue could not sustain any addition without incriminating material for the relevant AY. The High Court noted that the ITAT had rightly deleted the additions for AYs 2012-13 to 2015-16 based on this settled legal position.

Conclusion:
The High Court concluded that the instant appeals did not raise any substantial questions of law and found no reason to interfere with the judgment rendered by the ITAT. The appeals were dismissed, and the ITAT's decision to delete the additions for AYs 2012-13 to 2015-16 was upheld. The court held that the Revenue's case was based on presumptions and lacked concrete evidence to substantiate the additions made by the AO.

← Previous Next →