2018 (11) TMI 1001 - AT - Income Tax

Tax Tribunal Invalidates Section 153A Proceedings & Unsustainable Section 68 Additions

The Tribunal quashed the section 153A proceedings as no incriminating material was found during the search, rendering the proceedings invalid. ... Assessment u/s 153A - Unexplained cash credits u/s 68 - proof of incriminating material find in search - Held that:- Both the lower authorities have heard in law in initiating section 153A proceedings against these two assessee since no regular assessment was pending against them u/s 153A(1) 2nd Proviso of the Act. Their returns filed within due date(s) already form part of record before us whereas the search took place on 08.03.2016. We make it clear that section 158BB of the Act does not apply since it formed part of the block assessment proceedings no more applicable after 01.06.2003. We therefore quash these two impugned assessments to be not sustainable in the eyes of law. The assessees’ other identical substantive grounds challenging correctness of section 68 addition of unexplained share capital on merits are rendered infructuous. These two appeals are allowed in favour of assessee. Issues Involved:1. Validity of section 153A proceedings without incriminating material.2. Treatment of share capital as unexplained cash credits under section 68 of the Income Tax Act, 1961.Detailed Analysis:1. Validity of Section 153A Proceedings Without Incriminating Material:The primary issue raised by the assessees was the validity of the section 153A proceedings initiated without any incriminating material found during the search. The assessees argued that no incriminating evidence was discovered during the search conducted on 08.03.2016, which is a precondition for initiating section 153A assessment proceedings. They referenced the decisions in M/s Consistent Vyapaar Pvt. Ltd. and M/s. Bhansali Fincom Pvt. Ltd., which held that in the absence of incriminating material, the proceedings under section 153A should be quashed.The Tribunal affirmed this view, emphasizing that the assessment for the relevant years was concluded, and no incriminating material was found during the search. The Tribunal relied on the judicial precedents which state that in the absence of any incriminating material, the completed assessments cannot be disturbed. The Tribunal cited various cases, including CIT vs. Kabul Chawla and CIT vs. Veerprabhu Marketing Ltd., which supported the assessees' contention that additions under section 153A can only be made based on incriminating material found during the search.2. Treatment of Share Capital as Unexplained Cash Credits Under Section 68:The assessees challenged the addition of share capital as unexplained cash credits under section 68 of the Act. The lower authorities had treated the share capital sums of Rs. 96,00,000 and Rs. 28,08,500 as unexplained cash credits, leading to their inclusion in the assessees' income.The Tribunal found that the lower authorities' reliance on statements and other materials without corroborative evidence was not justified. The Tribunal noted that the assessees had provided all necessary details regarding the share capital, including identity, genuineness of transactions, and creditworthiness of the investors. The Tribunal held that in the absence of any incriminating material found during the search, the addition under section 68 could not be sustained.The Tribunal referred to the CBDT instructions, which advise against obtaining confessions of undisclosed income during search operations unless supported by credible evidence. The Tribunal concluded that no addition could be made merely based on statements recorded during the search without corroborative evidence.Conclusion:The Tribunal quashed the section 153A proceedings against the assessees, holding that no incriminating material was found during the search to justify the initiation of such proceedings. Consequently, the additions made under section 68 for unexplained share capital were also rendered infructuous. The appeals were allowed, and the assessments were deemed unsustainable in the eyes of law.