Tribunal rejects income addition under Section 68, emphasizes need for incriminating material

The Tribunal upheld the deletion of an addition of Rs. 8.00 crores made under Section 68 of the IT Act, 1961, as the advance received was forfeited and not an unexplained receipt. The Tribunal emphasized the importance of incriminating material for additions in non-abated assessments. Additionally, the Tribunal rejected the enhancement of income based on an application to the Settlement Commission, stating that mere disclosure without supporting material cannot be a basis for addition. The appeals of the assessee were allowed, and the Revenue's appeal was dismissed.

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Issues Involved:
1. Deletion of Addition under Section 68 of the IT Act, 1961.
2. Enhancement of Income Based on Application to Settlement Commission.

Detailed Analysis:

1. Deletion of Addition under Section 68 of the IT Act, 1961

Background:
- The Department challenged the deletion of an addition of Rs. 8.00 crores made by the AO under Section 68 of the IT Act, 1961, which was claimed to be an unexplained receipt.
- The assessee filed her return of income on 20-07-2012, declaring a total income of Rs. 10,33,768/-. The assessment was completed under Section 143(3) on 30-09-2014.
- A search and seizure operation was conducted on 17-12-2014 on various premises of Sehgal Group, leading to the discovery of an agreement to sell dated 10-10-2011, indicating that the assessee and her husband agreed to sell properties for Rs. 56.00 crores, with an advance of Rs. 8.00 crores received from M/s. Makesworth Projects & Developers Pvt. Ltd.
- The AO doubted the genuineness of the transaction and added Rs. 8.00 crores as unexplained receipt under Section 68.

CIT(A) Findings:
- The CIT(A) deleted the addition, stating that no incriminating material was found during the search to support the addition.
- It was held that the advance received was forfeited due to the purchaser’s failure to pay the balance amount and should be reduced from the cost of acquisition as per Section 51 of the Act.

Tribunal’s Analysis:
- The Tribunal upheld the CIT(A)’s decision, emphasizing that the assessment was not pending on the date of search, and no incriminating material was found.
- It was noted that the agreement to sell and the receipt of Rs. 8.00 crores through RTGS transfer were genuine and documented.
- The AO’s reliance on the statement of a director of M/s. Makesworth Projects & Developers Pvt. Ltd. was not sufficient without giving the assessee an opportunity for cross-examination.
- The Tribunal cited several precedents, including the Hon’ble Jurisdictional High Court’s decision in Jai Steel (India) and the Hon’ble Bombay High Court’s decision in Murali Agro Products Ltd., supporting the requirement of incriminating material for additions in non-abated assessments.
- The Tribunal concluded that the assessee had discharged her onus to prove the identity, creditworthiness, and genuineness of the transaction.

2. Enhancement of Income Based on Application to Settlement Commission

Background:
- The assessee filed an application under Section 245C(1) before the Settlement Commission, offering additional income of Rs. 35.00 lacs for AY 2009-10 to 2015-16. The Settlement Commission rejected the application for lack of supporting material.
- The CIT(A) enhanced the assessment by adding Rs. 5.00 lacs for AY 2012-13 and Rs. 10.00 lacs for AY 2015-16 based on the disclosure in the application to the Settlement Commission.

Tribunal’s Analysis:
- The Tribunal noted that the Settlement Commission rejected the application because the additional income was based on estimates without any supporting transactions or material.
- It was held that mere disclosure of income in the application to the Settlement Commission cannot be a basis for addition in the absence of any incriminating material.
- The Tribunal cited the ITAT Mumbai Bench’s decision in Anantanadh Constructions & Farms Pvt. Ltd. and the Hon’ble Gujarat High Court’s decision in Maruti Fabrics, which held that confidential information submitted to the Settlement Commission cannot be used for addition without supporting material.
- The enhancement made by the CIT(A) was deleted as it was not supported by any incriminating material found during the search.

Conclusion:
- The appeals of the assessee were allowed, and the Revenue’s appeal was dismissed.
- The Tribunal emphasized the necessity of incriminating material for additions in non-abated assessments and the inadmissibility of unsupported disclosures made to the Settlement Commission for assessment purposes.

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