2019 (10) TMI 878 - AT - Income Tax

Tribunal rejects tax addition in unabated assessment, finding lack of incriminating material

Assistant Commissioner of Income Tax, Central Circle-3 (2), Kolkata Versus M/s. Shantinath Financial Services Limited.

Assistant Commissioner of Income Tax, Central Circle-3 (2), Kolkata Versus M/s. Shantinath Financial Services Limited. - TMI Issues Involved:1. Jurisdiction of Assessing Officer under section 153A.2. Requirement of incriminating material for additions under section 153A.3. Validity of additions based on statements and documents not found during the search.4. Legal precedents and judicial interpretations relevant to section 153A.Issue-Wise Detailed Analysis:1. Jurisdiction of Assessing Officer under section 153A:The Assessing Officer (AO) issued a notice under section 153A following a search and seizure action under section 132(1). The AO's jurisdiction to issue such notice is automatic upon initiation of a search. The AO is mandated to assess or reassess the total income, which includes examining books of accounts or documents that might not have been produced earlier. The AO's power is not restricted to the material found during the search but extends to the assessment of total income, including disclosed and undisclosed items. This interpretation is supported by various judicial precedents, indicating that section 153A encompasses a broad scope for reassessment.2. Requirement of incriminating material for additions under section 153A:The primary contention was whether additions under section 153A should be based solely on incriminating material found during the search. The Tribunal noted that judicial pronouncements have classified assessments into two categories: completed and pending or abated assessments. For completed assessments (where no proceedings were pending as on the date of the search), the scope of reassessment under section 153A is limited to undisclosed income based on incriminating material found during the search. This position is supported by several judicial decisions, including those from the Hon'ble Calcutta High Court, which consistently held that additions in such cases must be based on incriminating material.3. Validity of additions based on statements and documents not found during the search:The AO made additions based on statements of entry operators and dummy directors recorded by the Investigation Wing, which were not part of the search proceedings against the assessee. The Tribunal found merit in the assessee's contention that these statements, recorded in connection with other cases and subsequently retracted, could not be treated as incriminating material for making additions under section 153A. The Tribunal emphasized that additions must be based on incriminating material found during the search, and in this case, no such material was found.4. Legal precedents and judicial interpretations relevant to section 153A:The Tribunal relied on several judicial precedents, including decisions from the Hon'ble Calcutta High Court and the Hon'ble Delhi High Court, which held that additions in search assessments must be based on incriminating material. Notable cases include:- PCIT-2, Kolkata Vs. Salasar Stock Broking Limited: The Hon'ble Calcutta High Court upheld the Tribunal's decision that the AO had no jurisdiction to reopen concluded cases without incriminating material.- CIT Vs. Kabul Chawla: The Hon'ble Delhi High Court held that additions under section 153A must be based on incriminating material found during the search.- PCIT Vs. Kurele Paper Mills Pvt. Ltd.: The Hon'ble Supreme Court dismissed the SLP against the Delhi High Court's decision, which held that no addition under section 68 could be made without incriminating material found during the search.Conclusion:The Tribunal upheld the order of the Commissioner of Income Tax (Appeals), which deleted the addition made by the AO under section 68. The Tribunal concluded that since the assessment for the relevant year was not pending as on the date of the search, the addition made by the AO in the unabated assessment under section 153A was not sustainable as it was not based on any incriminating material found during the search. The appeal of the Revenue was dismissed.Order pronounced in the open Court on September 12, 2019.