2024 (7) TMI 892 - AT - Income Tax

Assumption of jurisdiction u/s 153A - Period of limitation - Unexplained credit u/s 68 - HELD THAT - As per Explanation-2, asset includes immovable property being land and building or both, share and securities, loans and advances, deposits in bank accounts. In the present case, AO has doubted the share capital issued by the assessee during the year. The same is nothing but a liability for the assessee. Therefore, the jurisdictional requirement to make the impugned addition, in the present case, has not been satisfied by AO. AO could go beyond 6 years only in a case where there was certain income which escaped assessment and the same was represented in the form of an asset. The same is missing in the present case. CIT(A), in a very elaborate manner, has clinched the issue of jurisdiction and arrived at a conclusion that share capital would not come under the definition of asset since it represent liability of the assessee. Therefore, the satisfaction arrived at by Ld. AO to treat the share capital as an asset was an erroneous attempt and accordingly, the jurisdiction was not legally tenable. We concur with the same and accordingly, find no reason to interfere in the impugned order, in any manner. Our view is duly supported by the decision of Goldstone Cements Ltd. 2023 (10) TMI 278 - GAUHATI HIGH COURT wherein the facts were identical held AO could not assume jurisdiction to make addition of other items viz. liabilities etc. Such a scenario belies the claim of Ld. AO that while issuing notice u/s 153A, he was in possession of the jurisdictional fact i.e., undisclosed asset valued Rs. 50 Lacs or more had escaped assessment which constitute the key to open the lock and then reassess the income of the assessee for the 7th to 10th year. When AO fails to make any addition for the undisclosed asset then it tantamount to admission that there was no jurisdictional fact present before AO in the first place and the necessary corollary would be that AO wrongly assumed jurisdiction u/s 153A and therefore, he could not proceed further to make other items of additions / disallowance. Decided against revenue.

Summary

Issues Involved:
1. Jurisdictional validity of the assumption of jurisdiction under Section 153A for AY 2012-13.
2. Legality of the addition of Rs. 14,87,50,000/- made towards unexplained credit under Section 68 of the Act.

Comprehensive, Issue-wise Detailed Analysis:

1. Jurisdictional Validity of the Assumption of Jurisdiction under Section 153A for AY 2012-13:

The Revenue's appeal arises from the order of the CIT(A) which held that the assumption of jurisdiction by the AO under Section 153A for AY 2012-13 was not legally tenable. The CIT(A) observed that the search was conducted on 26-02-2021, and the impugned AY falls beyond six years from the end of the previous year in which the search was conducted. According to the fourth proviso to Section 153A(1), the AO can issue a notice for assessment or reassessment beyond six years and up to ten years only if certain conditions are met, including the existence of an undisclosed asset valued at Rs. 50 Lacs or more.

The CIT(A) noted that the AO treated the share capital as an asset, but the share capital is a liability and does not fall under the definition of 'asset' as per Explanation 2 to Section 153A. Therefore, the satisfaction arrived at by the AO to treat the share capital as an asset was erroneous, and the assumption of jurisdiction beyond six years was not legally tenable. The CIT(A) emphasized that the AO must record satisfaction in writing regarding the existence of the conditions specified in the fourth proviso before issuing a notice under Section 153A.

The Tribunal concurred with the CIT(A) and noted that the jurisdictional requirement to make the impugned addition was not satisfied by the AO, as the share capital is a liability and not an asset. The Tribunal upheld the CIT(A)'s decision, confirming that the AO's assumption of jurisdiction was not legally tenable.

2. Legality of the Addition of Rs. 14,87,50,000/- Made Towards Unexplained Credit under Section 68 of the Act:

During the assessment proceedings, the AO alleged that the assessee introduced unaccounted income in the form of share capital through shell companies. The AO added Rs. 14,87,50,000/- to the income of the assessee as unexplained cash credit under Section 68. However, during the appellate proceedings, the assessee argued that no incriminating material was found during the search to support the impugned additions and that the share capital is a liability, not an asset.

The CIT(A) observed that the AO's satisfaction to treat the share capital as an asset was erroneous, and the assumption of jurisdiction beyond six years was not legally tenable. Consequently, the addition made by the AO under Section 68 was deleted.

The Tribunal upheld the CIT(A)'s decision, noting that the share capital is a liability and does not fall under the definition of 'asset' as per Explanation 2 to Section 153A. Therefore, the jurisdictional requirement to make the impugned addition was not satisfied by the AO. The Tribunal confirmed that the addition of Rs. 14,87,50,000/- made towards unexplained credit under Section 68 was not legally tenable.

Conclusion:

The Tribunal dismissed the Revenue's appeal, confirming that the AO's assumption of jurisdiction under Section 153A for AY 2012-13 was not legally tenable, and the addition of Rs. 14,87,50,000/- made towards unexplained credit under Section 68 was not justified. The Tribunal's decision was supported by the Gauhati High Court's decision in the case of Goldstone Cements Ltd., which held that the AO could not assume jurisdiction to make additions of other items if the jurisdictional fact of an undisclosed asset was not present. The appeal was dismissed, and the order was pronounced on 10th July 2024.