2024 (9) TMI 1513 - AT - Income Tax

Validity of assessment u/s 153A - unexplained cash credit u/s.68 - Sustainability of the additions made by the A.O in absence of any incriminating material found in the course of the search proceedings - Non obtaining a valid approval u/s.153D Whether or not assessment proceedings in the case of the assessee company for A.Y.2010-11 were unabated as on the date on which search seizure proceedings u/s. 132 of the Act were conducted on it, i.e. on 24.10.2017? - HELD THAT - Admittedly, it is an undisputed fact that assessment proceedings in the case of the assessee company for the subject year, i.e. A.Y.2010-11 on the date of search i.e. on 24.10.2017 were unabated. On this aspect, neither anything to the contrary is discernible from the record nor any contention disputing the said factual position had been raised before us by the Ld. CIT-DR or stated in the report filed by the A.O. Whether any incriminating material pertaining to the subject year, i.e. A.Y.2010-11 was found in the course of search seizure proceedings? - We are of a firm conviction that now when the share application money received by the assessee company from the mentioned share applicants is found recorded in its audited books of accounts, and had formed part of its financial statements that were enclosed along with its original return of income for the said year, it is difficult to fathom that as to how the same could be brought within the meaning of Incriminating material found in the course of search proceedings conducted. Rather, the fact that shares were issued by the assessee company to the aforementioned respective share applicants in lieu of the share application money that was received from them much prior to the search and seizure proceedings, therein fortifies the assessee's claim that the share application money that was received from the aforementioned parties could not be held as incriminating material found in the course of search and seizure proceedings conducted on the assessee company on 24.10.2017. Although it is the claim of the department that the assessee company during the year under consideration was in receipt of share application money of Rs.5.75 crore from 2 paper/shell companies but there can be no gainsaying that no incriminating material was found or unearthed during the course of search proceedings which would support the same. In fact, it is not even the case of the department that any incriminating material evidencing receipt of accommodation entries by the assessee company in the garb of share application money/share capital/share premium from the aforementioned investor/subscriber companies was found in the course of the search seizure proceedings conducted on 24.10.2017. Statements of the directors of the investor companies - We are unable to persuade ourselves to subscribe to the aforesaid claim of the department. As the statements of the directors of the investor companies were recorded by the DDIT(Inv.), Unit-IV, Kolkata much prior to the search seizure proceedings conducted on the assessee company on 24.10.2017, therefore, the same cannot be brought within the meaning of incriminating material found or unearthed during the course of search seizure proceedings conducted on the assessee company. Thus, unable to concur with the A.O (as stated in his report dated 08.09.2023)/CIT-DR that the adverse statements of the directors of the investor companies, which were recorded much prior to the search conducted on the assessee company can be brought within the meaning of incriminating evidence found in the course of the search seizure proceedings conducted on the assessee company on 24.10.2017 which, thus, vested jurisdiction with the A.O to make additions while framing the assessment u/s.153A of the Act. Evasive reply of Shri Sanjay Agrawal, director of the assessee company in his statement recorded u/s. 132(4) dated 24.10.2017 and u/s. 131(1A) - We are of a firm conviction that the mere fact that Shri Sanjay Agrawal, director of the assessee company, had in his statement recorded u/s. 132(4) of the Act, dated 24.10.2017 failed to furnish details as regards the investments made by the investor/subscriber companies can by no stretch of imagination render the said statement as incriminating in nature. Also, we find no substance in the claim of the department that as Shri Sanjay Agrawal in his reply to Question No.7 of his statement recorded u/s.131(1A) of the Act dated 29.01.2018, had stated that the share capital/premium was received by the assessee company from Kolkata based investor companies through banking channels, therefore, the same rendered the said statement as incriminating in nature. At the threshold, we may observe that as the aforesaid statement dated 29.01.2018 (supra) was in itself recorded much after conclusion of the search proceedings, therefore, the same cannot be brought within the meaning of incriminating material found in the course of search seizure proceedings conducted on the assessee company on 24.10.2017. Insignificant financials of the investor companies - It is only where any incriminating material is found or unearthed in the course of search proceedings that the requisite jurisdiction to make addition regarding unabated assessment of the assessee company for the subject year would be vested with the A.O. We are of a strong conviction that drawing of adverse inferences regarding the financial credibility of the investor companies by the A.O de-hors finding of any incriminating material in the course of search seizure proceedings would not vest jurisdiction with the A.O to make addition in its unabated assessment for the subject year, i.e. A.Y.2010-11 We are of a firm conviction that as the observation of the A.O that investors/subscriber companies did not have necessary creditworthiness to make investment towards share application money/share capital/share premium cannot be brought within the meaning of incriminating material found in the course of search seizure proceedings conducted on the assessee company on 24.10.2017, therefore, the A.O on the said count itself was divested of his jurisdiction to make any addition while framing assessment in the unabated assessment of the assessee company for A.Y. 2010-11. 74. We, thus, in terms of our aforesaid observations are of the considered view that as held by the Hon'ble Apex Court in the case of Abhisar Buildwell (P) Ltd. 2023 (4) TMI 1056 - SUPREME COURT in absence of any incriminating material found in the course of search proceedings, no addition regarding the unabated assessment of the assessee company for the subject year, i.e. A.Y.2010-11 could have been made. 75. Accordingly, in the backdrop of our aforesaid deliberations, we concur with the Ld. AR that the A.O had wrongly assumed jurisdiction and made an addition u/s. 68 of the Act while framing the assessment u/s. 143(3) r.w.s. 153A. Absence of a valid approval u/s. 153D of the Jt. CIT, Range Central - A.O in the present case before us, had after forwarding the draft assessment order for approval u/s. 153D of the Act to the Jt. CIT on 26.12.2019 not only continued with the assessment proceedings, but had also after receiving the approval of the Jt. CIT, Range-Central, Raipur vide his letter, dated 30.12.2019, tinkered with the said draft assessment order which, thus, had resulted to material variance/difference between the final assessment order and the draft assessment order that was approved by the Jt. CIT. As observed by us hereinabove, it is neither the case of the department that the facts pertaining to continuation of the assessment proceedings after forwarding the draft assessment order for approval of the Jt. CIT, Range-Central, Raipur, i.e. from 27.12.2019 to 28.12.2019 were brought by the A.O to the notice of the Jt. CIT; or any fresh draft assessment order incorporating the aforementioned material facts was forwarded to the Jt. CIT, Range-Central, Raipur for his fresh approval u/s. 153D of the ActOnce the draft assessment order is approved by the Jt. CIT u/s. 153D of the Act, then the A.O thereafter is rendered as functus officio and can only pass the final assessment order as approved by the Jt. CIT. An analogy in support of our aforesaid view can safely be drawn from the judgment of the Hon'ble Apex Court in the case of Panchmahal Steel Ltd. Vs. U.A.Joshi, ITO and another 1996 (9) TMI 8 - SUPREME COURT In the present case before us not only the A.O had tinkered with the draft assessment order that was approved by the Jt. CIT, Range-Central, Raipur vide his letter dated 30.12.2019 but had also come up with a final assessment order, which as observed by us hereinabove is found to be materially different from the draft assessment order that was approved by the Jt. CIT on 30.12.2019. Thus we are of a firm conviction that as the Jt. CIT, Range-Central, Raipur had no occasion to consider the changes/modifications/alteration carried out by the Dy.CIT(Central Circle)-2, Raipur to the draft assessment order that was approved by him on 30.12.2019; nor was informed of the assessment proceedings that were continued by the A.O after forwarding of the draft assessment order on 26.12.2019, therefore, we concur with the Ld. AR that the final assessment order was passed by the A.O without obtaining the approval of the Jt. CIT, Range-Central, Raipur as required per the mandate of Section 153D of the Act.Accordingly, in absence of a valid approval having been granted by the Jt. CIT, Range-Central, Raipur, based on which, the common final assessment order had been passed by the A.O u/s. 143(3) r.w.s. 153A/143(3) of the Act, dated 30.12.2019, we are of the view that the same cannot be sustained and is liable to be struck down on the said count itself.

Summary

Issues Involved:
1. Validity of the addition of Rs. 5.75 crore as unexplained cash credit under Section 68 of the Income Tax Act.
2. Jurisdiction of the Assessing Officer (A.O) under Section 153A in absence of incriminating material.
3. Validity of approval under Section 153D of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Validity of the addition of Rs. 5.75 crore as unexplained cash credit under Section 68 of the Income Tax Act:
The A.O had added Rs. 5.75 crore received by the assessee company from two Kolkata-based companies as unexplained cash credit under Section 68. The Commissioner of Income-Tax (Appeals) [CIT(A)] deleted this addition, holding that the share application money was genuine and supported by documentary evidence. The CIT(A) noted that the A.O failed to provide any cogent evidence to prove that the share application money was bogus or that the investor companies were shell companies. The Tribunal upheld the CIT(A)'s decision, emphasizing that the A.O did not find any incriminating material during the search to support the addition.

2. Jurisdiction of the Assessing Officer (A.O) under Section 153A in absence of incriminating material:
The assessee company argued that the A.O had no jurisdiction to make the addition under Section 153A as no incriminating material was found during the search. The Tribunal agreed with the assessee, citing the Supreme Court's decision in Pr. CIT, Central-3 Vs. Abhisar Buildwell (P) Ltd, which held that in absence of incriminating material, no addition can be made in respect of completed/unabated assessments. The Tribunal noted that the A.O's addition was based on documents and statements that were already part of the regular books of accounts and not discovered during the search. Therefore, the addition was invalid.

3. Validity of approval under Section 153D of the Income Tax Act:
The assessee contended that the approval granted by the Joint Commissioner (Jt. CIT) under Section 153D was mechanical and without application of mind. The Tribunal found merit in this argument, noting that the A.O continued the assessment proceedings even after forwarding the draft assessment order for approval, which led to significant differences between the draft and final assessment orders. The Tribunal held that the final assessment order was passed without a valid approval as required under Section 153D, rendering it invalid. The Tribunal emphasized that the Jt. CIT must apply an independent mind and verify the draft assessment order in the backdrop of the seized material before granting approval.

Conclusion:
The Tribunal allowed the cross-objections filed by the assessee and dismissed the appeals filed by the revenue. The Tribunal held that the A.O had wrongly assumed jurisdiction under Section 153A in absence of incriminating material and that the final assessment order was invalid due to the lack of a valid approval under Section 153D. Consequently, the additions made by the A.O were vacated.