2019 (9) TMI 604 - AT - Income Tax

Tribunal overturns AO's addition under Section 153A, ruling in favor of assessee

Kurele Fragranes Pvt. Ltd. Versus ACIT Cent. Circle-23 New Delhi

Kurele Fragranes Pvt. Ltd. Versus ACIT Cent. Circle-23 New Delhi - TMI Issues Involved:1. Legality of addition under Section 153A without incriminating material.2. Examination of share application money received by the assessee.Issue-wise Detailed Analysis:1. Legality of Addition under Section 153A without Incriminating Material:The primary issue revolves around whether the addition of Rs. 1.01 crores can be made under Section 153A without any incriminating material found during the search. The assessee argued that since no incriminating material was found during the search, the addition was beyond the scope of Section 153A. The Tribunal agreed with the assessee, stating that the original assessment had attained finality, and the addition was based solely on the balance sheet, which was already scrutinized during the original assessment proceedings. The Tribunal cited several judgments, including CIT vs. Kabul Chawla, which established that in the absence of incriminating material, no addition can be made under Section 153A. The Tribunal concluded that the addition made by the AO was beyond the scope of Section 153A and directed its deletion.2. Examination of Share Application Money Received by the Assessee:The assessee received fresh share application money amounting to Rs. 1.01 crores, which was disclosed in the balance sheet. The AO questioned the identity, creditworthiness, and genuineness of the transactions related to the share application money. The assessee furnished all necessary evidence, including documents submitted during the original assessment proceedings. Despite this, the AO made the addition based on the balance sheet. The Tribunal noted that the entire balance sheet and profit and loss account were scrutinized during the original assessment, and no new material was found during the search to justify the addition. The Tribunal reiterated that additions under Section 153A should be based on seized material and not arbitrary assessments. Consequently, the Tribunal directed the deletion of the addition of Rs. 1.01 crores.Conclusion:The Tribunal allowed the appeal of the assessee, holding that the addition of Rs. 1.01 crores was beyond the scope of Section 153A as it was not based on any incriminating material found during the search. The Tribunal emphasized that completed assessments can only be interfered with based on incriminating material unearthed during the search, and not on previously scrutinized documents. The order pronounced on 29th March 2019 directed the deletion of the addition, thereby allowing the appeal in favor of the assessee.