2019 (10) TMI 878 - AT - Income Tax

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

The Tribunal upheld the Commissioner of Income Tax (Appeals) order, deleting the addition made by the Assessing Officer under section 68. The Tribunal ... Scope of assessment under section 153A in completed assessments - requirement of incriminating material for additions in unabated (completed) assessments - distinction between abated (pending) and completed assessments for search assessments - addition under section 68 (unexplained cash credit) in search cases - evidentiary value of statements recorded outside or retracted statements in search proceedings - logical nexus / relevance to seized material as a constraint on post-search additions - precedential weight of jurisdictional High Court decisions in resolving conflict of authorities - ratio: for assessments which were completed before search, additions under section 153A are limited to items supported by incriminating material unearthed by the searchScope of assessment under section 153A in completed assessments - requirement of incriminating material for additions in unabated (completed) assessments - addition under section 68 (unexplained cash credit) in search cases - Deletion of addition made under section 68 in an assessment completed under section 153A where no incriminating material was found during the search. - HELD THAT: - The Tribunal examined the legal distinction between assessments that were pending/abated on the date of search and those already completed. It accepted the consistent view of the jurisdictional High Court and Tribunal authorities that where an assessment for the relevant year is not pending on the date of search (i.e., is completed), the scope of a section 153A assessment is confined to undisclosed income demonstrably connected to incriminating material found during the search. Applying that principle to the facts, the Tribunal found that the Assessing Officer made the addition under section 68 by treating share capital and share premium as unexplained cash credit without any incriminating documents seized in the search to support that addition. In those circumstances, and in view of binding precedents in the Calcutta jurisdiction and the dismissal of the Revenue's SLPs on closely analogous facts, the Tribunal held the addition was not sustainable and upheld the deletion by the CIT(A).Addition of Rs. 2,95,00,000 made under section 68 in the section 153A assessment deleted; appeal of the Revenue dismissed on this point.Evidentiary value of statements recorded outside or retracted statements in search proceedings - logical nexus / relevance to seized material as a constraint on post-search additions - Whether statements of alleged entry operators and dummy directors (recorded otherwise and subsequently retracted) could be treated as 'incriminating material' to justify additions under section 153A. - HELD THAT: - The Tribunal considered the provenance and reliability of the statements relied upon by the Assessing Officer. It noted that no survey under section 133A was conducted concurrently at the assessee's or connected premises, the statements were recorded in relation to other matters and some declarants subsequently retracted their statements. The Tribunal observed that retracted statements uncorroborated by seized documents or other evidence lack sufficient evidentiary value and cannot be treated as incriminating material to reopen or disturb completed assessments under section 153A. Accordingly, such statements did not furnish the requisite nexus to justify the additions in the present case.Statements relied upon by the Assessing Officer (including retracted statements) were not treated as incriminating material; they did not justify the addition under section 68.Distinction between abated (pending) and completed assessments for search assessments - precedential weight of jurisdictional High Court decisions in resolving conflict of authorities - Whether the Tribunal should follow conflicting authorities that allow wider reassessment under section 153A or the jurisdictional line of decisions restricting additions in completed assessments to incriminating material. - HELD THAT: - The Tribunal acknowledged divergent judicial precedents on the scope of section 153A. After surveying decisions advanced by both parties, it gave controlling weight to the consistent decisions of the Calcutta High Court and the local Tribunal bench, which require incriminating material to support additions in cases where assessments were completed before the search. The Tribunal declined the Revenue's broader interpretation of section 153A for completed assessments and, following binding local precedent and relevant affirmations (including dismissal of SLPs on analogous facts), applied the narrower rule to the facts of this appeal.Followed jurisdictional High Court and Tribunal precedent restricting additions in completed assessments to items supported by incriminating material; the Revenue's contrary authorities were not applied.Final Conclusion: The Tribunal upheld the CIT(A)'s deletion of the addition made under section 68 in the section 153A assessment because the assessment year was a completed (unabated) assessment and no incriminating material was seized in the search; retracted or extraneous statements did not constitute incriminating material, and the Revenue's appeal is dismissed. 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.