2016 (12) TMI 1862 - AT - Income Tax

Tribunal allows appeals, quashes assessments, deletes penalties, and restores business loss set-off.

M/s. Dalwala Securities Ltd. Versus Dy. Commissioner of Income Tax Central Circle–33, Mumbai and M/s. Mukul Holding And Trading Co. P. Ltd. Versus Asst. Commissioner of Income Tax Central Circle–33, Mumbai

The Tribunal allowed the appeals for assessment years 2001-02 and 2002-03 by quashing the assessment orders under section 153A, deleted the addition for ... Validity of proceedings initiated u/s 153A - whether the proceedings under section 153A, have been validly initiated on the basis of incriminating material unearthed as a result of search revealing undisclosed income ? - HELD THAT:- On a careful perusal of the impugned assessment order, we have not come across any observations by the AO relating to detection of undisclosed income as a result of incriminating material found during the search. In fact, to put it correctly, the AO in the entire assessment order has not referred to a single piece of incriminating material found and seized during the search and seizure operation which could have been remotely connected to the so called undisclosed income assessed by the AO save and except the statement recorded from a director of a newly set–up company. In fact, on a perusal of the said statement also, we do not find in any way it is having any reference to the assessee. In fact, to a specific query from the bench to the learned Departmental Representative, to point out the specific incriminating material on the basis of which the addition has been made, the learned Departmental Representative fairly submitted, in the assessment order there is no reference to any such incriminating material. Thus, prima–facie it is established that there is no incriminating material unearthed as a result of search which could reveal undisclosed income of the assessee. In the present case, admitted factual position is, there is no incriminating material found at the time of search and seizure operation which could demonstrate that the money received towards share application and allotment of shares is not genuine. In the aforesaid circumstances, the initiation of proceedings under section 153A, in our view, is not permissible since these issues are subject matter of original assessment proceedings, completed before the date of search. - Decided in favour of assessee. Addition u/s 68 - unexplained cash credit at the hands of the assessee represents share application money received from Preksha Exports Pvt. Ltd. - HELD THAT:- As treated as unexplained cash credit at the hands of the assessee represents share application money received from Preksha Exports Pvt. Ltd. We have noted, Preksha Exports Pvt. Ltd. is an income tax assessee and not only it has reflected the investment in share application money, in its books of account but also in the financial statements submitted along with return of income. The concerned party has also confirmed the investment in the share application money. In fact, the same Assessing Officer has completed assessment in case of Preksha Exports Pvt. Ltd. without making any corresponding addition in case of the said party. That being the case, in our considered opinion, the addition made at the hands of the assessee cannot be sustained. Accordingly, we delete the same. Ground no.1 is allowed. Issues Involved:1. Validity of proceedings initiated under section 153A of the Income Tax Act.2. Addition of alleged bogus share application money as income.3. Imposition of penalty under section 271(1)(c) of the Income Tax Act.4. Disallowance of set-off of business loss.Detailed Analysis:1. Validity of Proceedings under Section 153A:In the appeals ITA no.5932/Mum./2009 and ITA no.5933/Mum./2009 concerning assessment years 2001–02 and 2002–03, the assessee challenged the validity of proceedings initiated under section 153A of the Act. The Tribunal noted that on the date of the search, no assessment was pending before the Assessing Officer for these years. For assessment year 2001–02, the original assessment had been completed under section 143(3) on 17th March 2004, and for assessment year 2002–03, the return of income had been processed under section 143(1). The Tribunal observed that no incriminating material was found during the search that could justify the initiation of proceedings under section 153A. The Tribunal cited several judicial precedents, including CIT v/s Continental Warehousing Corp. (Nhava Sheva) Ltd., 374 ITR 645, and concluded that in the absence of any incriminating material, the initiation of proceedings under section 153A was not valid. Consequently, the assessment orders for these years were quashed.2. Addition of Alleged Bogus Share Application Money:In the same appeals, the Assessing Officer had added the alleged bogus share application money as income of the assessee. The Tribunal noted that the Assessing Officer had not referred to any incriminating material found during the search to support the addition. The Tribunal held that re-examining the genuineness of the share application money in proceedings under section 153A was not permissible in the absence of any incriminating material. Therefore, the additions made by the Assessing Officer were not sustained, and the appeals for these years were allowed.In ITA no.5934/Mum./2009 for assessment year 2006–07, the Assessing Officer had added an amount of Rs. 14.25 lakh as unexplained cash credit under section 68 of the Act. The Tribunal noted that the share application money was received from Preksha Exports Pvt. Ltd., which had disclosed the amount in its books of account and financial statements. The same Assessing Officer had completed the assessment of Preksha Exports Pvt. Ltd. without making any corresponding addition. Therefore, the Tribunal deleted the addition, allowing the ground raised by the assessee.3. Imposition of Penalty under Section 271(1)(c):In ITA no.7773/Mum./2012, ITA no.7774/Mum./2012, and ITA no.7775/Mum./2012 concerning assessment years 2001–02, 2002–03, and 2006–07, the assessee challenged the imposition of penalty under section 271(1)(c). The Tribunal noted that since the additions on the basis of which the penalties were imposed had been deleted in the quantum proceedings, the penalties could not survive. Therefore, the penalties were deleted, and the appeals were allowed.4. Disallowance of Set-off of Business Loss:In ITA no.5934/Mum./2009 for assessment year 2006–07, the assessee raised the issue of disallowance of set-off of business loss of Rs. 15,808. The Tribunal noted that the learned Commissioner (Appeals) had not adjudicated this issue. Therefore, the Tribunal restored the issue to the file of the learned Commissioner (Appeals) for adjudication after providing due opportunity of being heard to the assessee.Separate Judgments Delivered:In ITA no.2372/Mum./2010 for assessment year 2002–03, the issue raised was identical to the one in ITA no.5932/Mum./2009 and ITA no.5933/Mum./2009. Following the decision in Para–8 of the order, the Tribunal annulled the assessment order passed under section 153A.Conclusion:In summary, the Tribunal allowed the appeals for assessment years 2001–02 and 2002–03 by quashing the assessment orders under section 153A, deleted the addition for assessment year 2006–07, deleted the penalties under section 271(1)(c) for all relevant years, and restored the issue of set-off of business loss to the learned Commissioner (Appeals) for adjudication. The appeals were disposed of accordingly.