2024 (7) TMI 967 - AT - Income Tax

Validity of proceedings initiated u/s 153A - absence of any incriminating material found and seized in course of search and seizure operation conducted u/s 132 - share application money/share premium received by the assessee, being treated as unexplained cash credit u/s 68 and disallowance made u/s 14A of the Act read with Rule 8D - HELD THAT - Careful perusal of the assessment orders reveal that in course of assessment proceedings, while verifying the audited financial statements of the assessee, AO came to know about the receipt of share application money/share premium during the years under dispute. To verify the genuineness of the money received the AO conducted inquiry by calling upon the assessee to furnish documentary evidences including bank statement, names and addresses of persons from whom share application money/share premium was received, their confirmations, income tax return copies etc. In compliance with the queries raised, the assessee did furnish various documentary evidences. AO was not convinced with the evidence furnished by the assessee to prove the creditworthiness of the persons/entities from whom the share application money/share premium was received. Hence, he also doubted the genuineness of the transaction. However, nowhere in the impugned assessment order the AO has referred to any incriminating/ seized material, much less any incriminating/seized material having direct bearing on the additions made. Even, he has not referred to any statement recorded in course of search seizure operation. On the contrary, reading of the assessment order clearly reveals that the additions made u/s 68 as well as section 14A r.w.r. 8D are based on inquiry conducted in course of assessment proceedings and nothing else. Thus, it is established on record that none of the additions made in the assessment orders are based on any incriminating/ seized material, found during search and seizure operations. Asa decided in ABHISAR BUILDWELL P. LTD. 2023 (4) TMI 1056 - SUPREME COURT in case of unabated assessment u/s 153A of the Act, no addition can be made in absence of any incriminating/ seized material found as a result of search and seizure operations. That being the settled legal position, the additions made by the AO u/s 68 and 14A cannot survive. Thus we direct the AO to delete the addition. Decided in favour of assessee.

Summary

Issues:
Validity of proceedings under section 153A of the Income-tax Act, 1961 without incriminating material found during search and seizure operation.

Analysis:
The judgment pertains to appeals and cross-objections arising from two separate orders of the Commissioner of Income-tax (Appeals) for the assessment years 2011-12 and 2012-13. The main issue raised in the cross-objections by the assessee challenges the validity of the proceedings initiated under section 153A of the Income-tax Act, 1961, contending that additions could not have been made without any incriminating material found during the search and seizure operation conducted under section 132 of the Act.

The assessee, a resident corporate entity engaged in real estate development, had filed returns of income for the relevant assessment years. Following a search and seizure operation, proceedings under section 153A were initiated. The Assessing Officer added amounts representing share application money/share premium as unexplained cash credits under section 68 of the Act. Additionally, a disallowance was made under section 14A read with Rule 8 in one of the assessment years.

Upon appeal, the First Appellate Authority deleted the addition made under section 68 of the Act after verifying the genuineness of the transactions. However, the disallowance under section 14A was confirmed. The assessee contended that the additions were made without any incriminating material, citing legal precedents to support the argument.

The Tribunal observed that the additions were based on an inquiry conducted during the assessment proceedings and not on any incriminating material found during the search and seizure operation. Referring to the Supreme Court's decision in a relevant case, the Tribunal held that in the absence of incriminating material, no additions could be made in unabated assessments under section 153A. Consequently, the additions made by the Assessing Officer were directed to be deleted.

As a result of the decision on the main issue, other grounds raised in the cross-objections and appeals became infructuous and were not adjudicated. The cross objections of the assessee were allowed, and the appeals of the Revenue were dismissed.