2018 (5) TMI 1727 - AT - Income Tax

Appeal allowed: Invalid assessment order under Section 153C due to lack of incriminating material

The Tribunal allowed the appeal, ruling that the assessment order under Section 153C was invalid as it lacked incriminating material. The documents used ... Assessment u/s 153C - addition u/s 68 - proof of documents found during search - Held that:- The documents neither suggest any undisclosed income of the assessee nor any nexus with the share capital declared by the assessee - thus the addition made on account of unexplained share capital stood deleted - relying on the decision of COMMISSIONER OF INCOME TAX (CENTRAL) -III VERSUS KABUL CHAWLA [2015 (9) TMI 80 - DELHI HIGH COURT] there is no justification to the addition made against the assessee - Decided in favor of assessee. Issues Involved:1. Legality of the assessment order made under Section 153C.2. Validity of the incriminating material used for assessment.3. Onus of proving the identity, creditworthiness, and genuineness of share applicants under Section 68.Issue-wise Detailed Analysis:1. Legality of the Assessment Order Made Under Section 153C:The primary contention of the assessee was that the assessment order made under Section 153C was not legally valid as it was not based on any incriminating material detected as a result of the search on the Brahmaputra group of cases. The assessee argued that no proceedings were pending either on the date of the search or on the date of issuance of the notice under Section 153C. The documents referred to by the Assessing Officer were allegedly used in multiple cases within the group without specifying how they were incriminating to the assessee. The Tribunal found considerable substance in the assessee's contention that the documents did not suggest any undisclosed income or nexus with the share capital declared by the assessee. Consequently, the assessment order was deemed invalid as it was passed without proving the primary ingredients of Section 153C.2. Validity of the Incriminating Material Used for Assessment:The Assessing Officer relied on certain documents found during the search at the premises of the Brahmaputra group, which were alleged to belong to the assessee. These documents included records of funds and transactions involving various individuals and companies. However, the Tribunal noted that these documents did not indicate any undisclosed income of the assessee or any connection with the share capital. The same documents were also used against other group companies, where similar additions were made and subsequently deleted by the Tribunal. The Tribunal concluded that the documents did not constitute incriminating material, and the statements recorded from individuals like Shri Sampat Sharma were not sufficient to substantiate the addition. Hence, the addition based on these documents was not justified.3. Onus of Proving the Identity, Creditworthiness, and Genuineness of Share Applicants Under Section 68:The Assessing Officer had made an addition of Rs. 10,00,000 under Section 68, asserting that the assessee failed to prove the identity, creditworthiness, and genuineness of the share applicants. However, the Tribunal found that the documents and statements used to support this claim were not incriminating and did not belong to the assessee. The Tribunal referred to previous decisions where similar additions were deleted due to the lack of incriminating material. The Tribunal held that the addition was made without any basis, as the documents did not prove any undisclosed income or nexus with the share capital. Therefore, the onus of proving the identity, creditworthiness, and genuineness of the share applicants was not adequately discharged by the Revenue.Conclusion:The Tribunal allowed the appeal, concluding that the assessment order under Section 153C was not legally valid due to the absence of incriminating material. The documents relied upon by the Assessing Officer did not indicate any undisclosed income or connection with the share capital, and the onus of proving the identity, creditworthiness, and genuineness of the share applicants was not met. The Tribunal's decision was consistent with previous rulings in similar cases within the same group, leading to the deletion of the addition made under Section 68.