2014 (6) TMI 736 - AT - Income Tax

Tribunal Validates Section 153A Proceedings, Emphasizes Incriminating Evidence Requirement

DCIT, Central Circle 13, New Delhi Versus M/s. Vrindavan Farms (P) Ltd.

The Tribunal upheld the validity of proceedings under Section 153A and the deletion of additions made by the AO regarding unexplained share application ... Validity of proceedings initiated u/s 153A of the Act - No search action at premises - The assessee is a group company of Swastik Pipes Group - the warrants are issued to the premises which are mainly used by the group for conducting business of the company and warrants are issued in respect of premises - There are possibilities that documents and other unaccounted wealth could have been found at any of such premises occupied by the various group companies - once a valid search is conducted u/s 132 against the assessee then the AO has jurisdiction to issue notices u/s 153A and to complete the assessment – Decided against Assessee. Deletion of unexplained share application money – Creditworthiness of investors and genuineness of transaction not proved – Whether in the absence of any incriminating material found during the course of search addition can be made by assessing officer as undisclosed income u/s 153A of the Act - Held that:- When there is no abatement of assessment proceedings then in absence of any incriminating documents or unaccounted wealth or statement against the assessee then no addition can be made in the assessment framed u/s 153A of the Act – Relying upon Kusum Gupta Versus DCIT, Central Circle-15 New Delhi [2013 (11) TMI 665 - ITAT DELHI] - merely because a search is conducted and even though no incriminating material is found as a result, the original assessment of the assessee cannot be reviewed or substituted by a change of opinion about any claim of deduction, allowance or claim of exempt income - addition cannot be made u/s 153A as there was no material which could show that share application money received was not genuine or it has come out of the coffers of the assessee’s unaccounted income. Revenue has not doubted the identity of the share applicant - All the share applicants were on income-tax record having PAN - The ITR details of the same were submitted by the assessee - various documents related to these persons were submitted, which include share application, bank statement, balance sheet and profit & loss account of the shareholders, confirmations, PA, certificate of incorporation, etc. - The AO has not taken any pain to investigate the veracity of the documents - The identity of the share applicants was not in doubt by AO which has not been even disputed in the ‘grounds of appeal’ taken by the revenue – Following CIT vs Lovely Exports Pvt. Ltd. [2008 (1) TMI 575 - SUPREME COURT OF INDIA] - the AO would have made further enquiries if he was in doubt about the genuineness of the confirmation and creditworthiness of the shareholders - there was a complete lack of enquiry on the part of the AO when the assessee has furnished the relevant material with regard to the share application money - The AO has neither issued summons u/s 131 of the Act nor has he received back any unserved notices from the shareholders – thus, the order of the CIT(A) is upheld – Decided against Revenue. Issues Involved:1. Validity of proceedings initiated under Section 153A.2. Validity of the notice issued under Section 153A.3. Validity of the assessment framed under Section 153A/143(3).4. Deletion of addition made by AO on account of unexplained share application money.Detailed Analysis:1. Validity of Proceedings Initiated Under Section 153A:The assessee argued that no search operation was conducted at their premises, and thus, no notice under Section 153A could be issued. The Tribunal examined the warrant of authorization and the panchnama, finding that the warrant included the assessee's name and was executed at the premises of the group company. The Tribunal rejected the assessee's claim, stating that the search was validly conducted under Section 132, giving the AO jurisdiction to issue notices under Section 153A. The Tribunal emphasized that the validity of the search does not depend on the specific premises but on the authorization and execution of the warrant.2. Validity of the Notice Issued Under Section 153A:The assessee contended that the notice under Section 153A was invalid as no search was conducted at their premises. The Tribunal dismissed this argument, referencing the warrant of authorization and the panchnama, which included the assessee's name and were executed as per legal requirements. The Tribunal concluded that the notice issued under Section 153A was valid.3. Validity of the Assessment Framed Under Section 153A/143(3):The Tribunal discussed various case laws, concluding that in the absence of any incriminating material found during the search, no addition can be made under Section 153A. The Tribunal cited cases like Kusum Gupta vs. DCIT and ACIT vs. Asha Kataria, which held that additions under Section 153A can only be made based on incriminating material found during the search. Since no such material was found in the assessee's case, the Tribunal held that the assessment framed under Section 153A/143(3) was invalid.4. Deletion of Addition Made by AO on Account of Unexplained Share Application Money:The AO had made additions under Section 68 regarding the share application money received by the assessee, questioning the creditworthiness and genuineness of the transactions. The Tribunal noted that the assessee had provided all necessary documents, including share application forms, confirmations, identity proofs, bank statements, and PAN details of the shareholders. The AO did not find any discrepancies in these documents. The Tribunal relied on the Supreme Court's decision in CIT vs. Lovely Exports Pvt. Ltd., which held that if the identity of the shareholders is established, the department is free to proceed against the shareholders but cannot make additions in the hands of the assessee company. The Tribunal upheld the CIT(A)'s decision to delete the addition, finding no merit in the revenue's appeals.Conclusion:The Tribunal dismissed the cross objections filed by the assessee and the appeals filed by the revenue. The Tribunal upheld the validity of the proceedings under Section 153A and the deletion of the addition made by the AO on account of unexplained share application money. The Tribunal emphasized the importance of incriminating material for making additions under Section 153A and the necessity for the AO to conduct proper inquiries when the assessee provides sufficient evidence.