2019 (4) TMI 1527 - AT - Income Tax

Tribunal rules in favor of assessee, emphasizing need for incriminating material in assessment proceedings

The Tribunal dismissed all three appeals filed by the Revenue, emphasizing the need for incriminating material for assessment proceedings under section ... Initiation of proceedings u/s 153A - no incriminating material found in search - HELD THAT:- It is also not in dispute that no incriminating material qua the assessee in question has come on record. It is also not in dispute that as per order passed by the AO u/s 147/143(3) of the Act dated 23.04.2010 that genuineness of the share capital of the assessee was duly examined and no addition has been made. As relying on KABUL CHAWLA [2015 (9) TMI 80 - DELHI HIGH COURT] when no incriminating material has come on record during the search and seizure operation conducted at the premises of the assessee rather assessment has been based upon mere statement of Shri Santosh Kumar Jain which was later retracted without any further corroborating material on record. Santosh Kumar Jain in answer to Question No.11 has categorically replied that, “we have given accommodation entries to Minda Group of companies through assessee company” and has not stated that he has provided accommodation entries to the assessee company. So, in view of the matter, ld. CIT (A) has erred in dismissing the legal ground raised by the assessee that in the absence of incriminating material, if any, unearthed during the course of search initiation of assessment proceedings u/s 153A is not maintainable and the assessment made by the AO is beyond the scope of section 153A of the Act. Consequently, legal ground raised by the assessee is determined in favour of the assessees/respondents. - Decided against revenue. Issues involved:- Disputed additions of unexplained cash credit under section 68 of the IT Act- Disputed commission paid to entry operators- Validity of assessment proceedings under section 153A of the IT ActAnalysis of the judgment:Issue 1: Disputed additions of unexplained cash credit under section 68 of the IT ActThe Appellant, ACIT, challenged the deletion of additions made by the AO on account of unexplained cash credit under section 68 of the IT Act. The AO had added amounts to the income of the assessee based on share capital and share premium received from various companies without explaining the source of investment. The CIT (A) partly allowed the appeals, prompting the Revenue to approach the Tribunal. The Tribunal examined the facts and circumstances, noting that no incriminating material was found during the search operation. The Tribunal observed that the AO had already examined the genuineness of the share capital in a previous assessment and found no discrepancies. Additionally, the additions were made based on a retracted statement without corroborating evidence. Relying on legal precedents, the Tribunal held that the initiation of assessment proceedings under section 153A was not maintainable without incriminating material and dismissed the Revenue's appeals.Issue 2: Disputed commission paid to entry operatorsThe second issue involved the addition of commission paid to entry operators, ranging from 0.5% to 1% of the accommodation entry provided by them. The AO added these amounts to the total income of the assessee, which was contested before the CIT (A) and subsequently the Tribunal. The Tribunal considered the lack of incriminating material and the retracted statement of the individual involved in providing accommodation entries. It was concluded that the assessment made by the AO under section 153A was beyond the scope of the Act due to the absence of substantive evidence. Consequently, the Tribunal ruled in favor of the assessee, holding that the additions were not sustainable and rightly deleted by the CIT (A).Issue 3: Validity of assessment proceedings under section 153A of the IT ActThe third issue pertained to the validity of assessment proceedings under section 153A of the IT Act. The assessee raised a legal ground challenging the initiation of proceedings under section 153A without incriminating material. The Tribunal, citing the decision in CIT vs. Kabul Chawla, emphasized that assessments pending at the time of the search abate and fresh assessments must be based on seized material. Since no incriminating material was found during the search, the Tribunal held that the initiation of assessment proceedings under section 153A was not maintainable. The legal ground raised by the assessee was upheld, leading to the dismissal of the Revenue's appeals.In conclusion, the Tribunal dismissed all three appeals filed by the Revenue, emphasizing the importance of incriminating material for assessment proceedings under section 153A and highlighting the necessity of substantive evidence to support additions to income.