2020 (12) TMI 389 - AT - Income Tax

Tribunal Affirms Deletion of Unexplained Cash Credits, Citing Lack of Incriminating Evidence in Tax Assessment Case.

The Deputy Commissioner of Income Tax, Central Circle-2, Surat. Versus M/s. Creative Trendz Pvt. Ltd.

The Tribunal dismissed the Revenue's appeal, affirming the Ld. CIT(A)'s order, which deleted the addition of unexplained cash credits under section 68 of ... Assessment u/s 153A - unexplained cash credits u/s.68 - HELD THAT:- Hon'ble Bombay High Court in CIT Vs. Continental Warehousing Corporation (Nheva Seva Limited) [2015 (5) TMI 656 - BOMBAY HIGH COURT] held that no addition can be made in respect of assessments which have became final if no incriminating material found during the search. CIT-DR failed to bring any fact that assessment for the year under consideration was pending at the time of search on 14.02.2014 of that the issue of share capital was not the subject matter in the assessment was not reported while filing the Return of Income in the assessment year under consideration. DR referred the explanation attached with section 153A that the AO has power to assess or re-assessing total income in respect of each assessment year falling within six assessment years. There is not dispute regarding statutory provision in the Act. However, the Hon'ble Bombay Delhi High Court has laid down Law that no addition in absence of incriminating material can be made in respect of assessment which has become final if no incriminating material is found during the search. DR failed to bring any contrary fact to our notice that any incriminating material was found during the search. The AO has not filed even a single piece document to support the grounds of appeal raised in these appeals. No contrary law is brought to our notice. Appeal of the Revenue is dismissed. Issues:- Addition of unexplained cash credits under section 68 of the Income Tax Act.- Validity of assessment under section 153A without incriminating material.- Burden of proof on identity, creditworthiness, and genuineness of transactions.- Interpretation of legal provisions and case laws regarding assessment in absence of incriminating material.Analysis:Issue 1: Addition of unexplained cash credits under section 68 of the Income Tax ActThe Revenue appealed against the deletion of an addition of Rs. 3,13,90,000 made by the Assessing Officer (AO) on account of unexplained cash credits under section 68 of the Act. The AO contended that the assessee company engaged in circular transactions with a Kolkata-based company, diverting unaccounted income, and issuing shares at a premium. The AO found inconsistencies in the company's transactions and the creditworthiness of the investor. However, the Ld. CIT(A) deleted the addition, emphasizing that completed assessments cannot be interfered with by the AO in the absence of incriminating material found during the search. The Tribunal upheld the Ld. CIT(A)'s decision, citing various legal precedents supporting the principle that additions cannot be made without incriminating material.Issue 2: Validity of assessment under section 153A without incriminating materialThe key contention revolved around the validity of the assessment under section 153A without any incriminating material discovered during the search. The assessee argued that no addition could be made in the absence of such material, as the assessment for the relevant years was already completed. The AO failed to produce any incriminating evidence related to the share capital during the search. The Tribunal referred to the decision in CIT Vs. Kabul Chawla, emphasizing that assessments can only be interfered with based on incriminating material not disclosed during the original assessment.Issue 3: Burden of proof on identity, creditworthiness, and genuineness of transactionsThe AO raised concerns about the identity, creditworthiness, and genuineness of the transactions involving the share capital. The assessee claimed to have discharged the burden of proof under section 68 by providing relevant documents and responses from the investor company. However, the AO remained unconvinced, leading to the addition of unexplained cash credits. The Ld. CIT(A) and the Tribunal sided with the assessee, highlighting the importance of proving these aspects to avoid additions under section 68.Issue 4: Interpretation of legal provisions and case laws regarding assessment in absence of incriminating materialThe Tribunal extensively discussed legal provisions and case laws, such as CIT Vs. Continental Warehousing Corporation and CIT Vs. Kabul Chawla, to support the decision that assessments cannot be reopened without incriminating material. The Tribunal emphasized that the AO failed to provide any contrary evidence or law to challenge the Ld. CIT(A)'s decision. Ultimately, the Tribunal dismissed the Revenue's appeal, affirming the Ld. CIT(A)'s order based on the absence of incriminating material during the search and the settled legal principles regarding assessments in such cases.