2021 (4) TMI 1252 - AT - Income Tax

Tribunal rejects Assessing Officer's additions, revenue fails to prove transactions; appeal partly allowed

The tribunal concluded that the additions made by the Assessing Officer were not sustainable as no incriminating material was found during the search to ... Validity of assessment under section 153A in unabated assessment years without incriminating material - Incriminating material seized during search as a jurisdictional requirement for disturbing finalised returns - Evidentiary value of statement recorded under section 132(4) and effect of subsequent retraction - Burden of proof in share sale transactions - assessee's primary onus and shifting burden on revenue to dislodge documentary evidence - Addition under section 68 in respect of sale proceeds of listed shares traded through recognised stock exchange - Principles of natural justice - requirement of confronting adverse third party statements and opportunity for cross examination - Evidentiary weight of third party/Investigation wing statements not confronted to the assesseeValidity of assessment under section 153A in unabated assessment years without incriminating material - Incriminating material seized during search as a jurisdictional requirement for disturbing finalised returns - Sustainability of additions in unabated assessment years framed under section 153A in absence of incriminating material found during search - HELD THAT: - The Tribunal held that where the assessment year was non abated at the time of search (i.e. the return had attained finality or the time for issuance of notice under section 143(2) had expired), additions under section 153A can be sustained only if they are founded on incriminating material seized/found during the search. Statements or investigation material recorded prior to or after the search, unless they constitute incriminating material actually seized in the search and are confronted to the assessee with opportunity to meet them, cannot be the sole basis to disturb a finalised return. Applying binding and coordinate precedents (including the jurisdictional High Court's ratio in Continental Warehousing), the Tribunal found no seized incriminating material relating to the assessee for AY 2010 11, 2011 12, 2012 13 and 2013 14 and therefore concluded that the AO lacked jurisdiction to sustain the additions in those unabated years. [Paras 6]Additions in the unabated assessment years (AY 2010 11, 2011 12, 2012 13, 2013 14) made under section 153A without reference to incriminating material seized during search are not sustainable; grounds allowing deletion of such additions.Assessment under section 153A - abated assessments and seized material - Validity of additions in an abated assessment year - Whether the jurisdictional requirement of incriminating material applies to the abated assessment year (AY 2014 15) in the same manner as to unabated years - HELD THAT: - The Tribunal distinguished the abated year (AY 2014 15). Since that year was abated on the date of search, the restriction applicable to non abated years (i.e. additions only on seized incriminating material) did not apply in the same manner. The Tribunal therefore did not extend its deletions on jurisdictional grounds to AY 2014 15 and dismissed the assessee's jurisdictional ground for that year. The decision noted that SEBI/other material relied upon did not resolve the issue on merits and, in any event, certain SEBI findings were not finally sustained. [Paras 8]Ground challenging jurisdiction of assessment under section 153A for AY 2014 15 dismissed; abated year principle distinguished and deletions on jurisdictional ground not granted for that year.Evidentiary value of statement recorded under section 132(4) and effect of subsequent retraction - Evidentiary weight of third party/Investigation wing statements not confronted to the assessee - Principles of natural justice - requirement of confronting adverse third party statements and opportunity for cross examination - Whether retracted statements and third party investigative statements, not confronted to the assessee and not supported by corroborative seized material, can sustain additions - HELD THAT: - The Tribunal found that statements on oath recorded under section 132(4) lose substantial evidentiary value when immediately retracted and are not supported by corroborative seized material. Further, third party/investigation wing statements placed on record but not confronted to the assessee, and without providing opportunity for cross examination, cannot form the sole basis for additions; reliance on such statements without confrontation breaches principles of natural justice. Applying precedents, the Tribunal held that additions founded only on such uncorroborated and un confronted statements are unsustainable. [Paras 6]Retracted statements and third party investigation statements not confronted to the assessee, and lacking corroborative seized material, cannot sustain additions; additions based solely on such material to be deleted.Burden of proof in share sale transactions - assessee's primary onus and shifting burden on revenue to dislodge documentary evidence - Addition under section 68 in respect of sale proceeds of listed shares traded through recognised stock exchange - Whether addition under section 68 and estimated commission under section 69C could be sustained against sale proceeds of shares traded on recognised stock exchange when the assessee furnished contract notes, demat records, STT evidence and bank settlement entries - HELD THAT: - The Tribunal observed that the assessee had discharged the primary onus by producing contract notes, demat statements, broker ledger, STT payment evidence and bank settlement entries showing receipt of sale consideration through banking channels. Where such documentary evidence establishes identity of the transaction, creditworthiness and genuineness of receipts arising from sale on a recognised exchange through a registered broker, the burden shifts to the revenue to bring cogent evidence to disprove genuineness (for example, proving cash routing or direct exchange of unaccounted money). In the absence of such cogent material linking the assessee to any cash exchanges or collusion with exit providers, additions under section 68 and the estimated commission under section 69C were held unsustainable and deleted for the relevant years (except as distinguished for the abated year as per issue 2). [Paras 6]Additions u/s 68 treating sale proceeds as unexplained cash credit and the estimated commission u/s 69C deleted where the assessee established genuineness of exchange through recognised stock exchange mechanisms and revenue failed to rebut with cogent evidence.Compliance with section 153D (facilitation by investigation wing) - maintainability - Compliance with provisions of section 153D raised as a ground but not argued before the Tribunal - HELD THAT: - The Tribunal recorded that no argument was advanced before it on the ground relating to compliance with section 153D. In absence of submissions or adjudication on this point, the ground was dismissed by the Tribunal. [Paras 6]Ground relating to compliance with section 153D dismissed for want of argument before the Tribunal.Final Conclusion: The Tribunal partly allowed the appeals: for the unabated years (AY 2010 11, 2011 12, 2012 13 and 2013 14) the additions made under section 153A/section 68 and the estimated commission under section 69C were deleted because no incriminating material seized in the search, the assessee had discharged primary onus and revenue failed to rebut with cogent, confronted and corroborative evidence; the jurisdictional challenge for the abated year (AY 2014 15) was dismissed and the ground on section 153D was not sustained. Issues Involved:1. Validity of notice issued under Section 153A of the Income Tax Act.2. Non-compliance with the provisions of Section 153D of the Income Tax Act.3. Addition of Rs. 44,39,566 under Section 68 of the Income Tax Act.4. Addition of Rs. 2,66,374 under Section 69C of the Income Tax Act.Detailed Analysis:1. Validity of Notice Issued Under Section 153A:The assessee contested that the notice issued under Section 153A was void as the jurisdictional conditions were not complied with, and no incriminating documents were found during the search proceedings. The appellate tribunal noted that the assessment for the year under consideration was a non-abated assessment year as no proceedings were pending on the date of the search. The tribunal concluded that no incriminating material was found during the search that could justify the issuance of notice under Section 153A. Hence, the additions made based on such notice were not sustainable.2. Non-Compliance with Provisions of Section 153D:The assessee argued that the Assessing Officer (AO) failed to comply with the provisions of Section 153D, rendering the entire assessment proceedings null and void. The tribunal did not find merit in this argument, as no specific arguments were urged regarding this ground. Consequently, this ground was dismissed.3. Addition of Rs. 44,39,566 under Section 68:The AO treated the sale proceeds of shares of Splash Media & Infra Limited (SMIL) as non-genuine and added Rs. 44,39,566 to the assessee's income under Section 68. The tribunal observed that the assessee had provided all necessary documentary evidence, including purchase and sale contract notes, demat statements, and bank statements, to substantiate the transactions. The AO's reliance on third-party statements without providing the assessee an opportunity for cross-examination was deemed insufficient to disprove the genuineness of the transactions. The tribunal emphasized that the onus was on the revenue to disprove the assessee's claim with cogent evidence, which was not done. Thus, the addition under Section 68 was deleted.4. Addition of Rs. 2,66,374 under Section 69C:The AO made an addition of Rs. 2,66,374 under Section 69C, alleging unexplained commission expenditure for availing accommodation entries of bogus capital gains. The tribunal found that the AO's conclusion was based on suspicion and conjectures without any corroborative evidence. The tribunal reiterated that the revenue failed to establish any cash exchange between the assessee and the alleged exit providers. As a result, the addition under Section 69C was also deleted.Conclusion:The tribunal concluded that the additions made by the AO were not sustainable in the eyes of the law. The assessee had discharged the primary onus of establishing the genuineness of the transactions, while the revenue failed to corroborate the additions with substantial evidence. Consequently, the tribunal deleted the additions made under Sections 68 and 69C, and the appeal was partly allowed.