2022 (3) TMI 661 - AT - Income Tax

Appeal allowed as CIT(A) overstepped in rectification, ITAT questions AO's jurisdiction for additions

Luxora Infrastructure Pvt. Ltd. Versus DCIT, CC-2 (1), Mumbai

The ITAT allowed the assessee's appeal, setting aside the rectification order passed by the CIT(A) under Section 154. It held that the CIT(A) ... Rectification of mistake u/s 154 - Assessment u/s 153A - Addition u/s 68 - HELD THAT:- Review of his own order under the garb of rectification of mistake u/s. 154 done by the ld.CIT(A) is complete travesty of appellate proceeding. By no stretch of imagination it can be said that ld.CIT(A) is rectifying a mistake apparent from the record. In the earlier order, ld.CIT(A) has quashed the assessment framed u/s. 153A on a finding that it was a non abated assessment and the addition was dehors any incriminating material found in search. In the present so called rectification order, the ld.CIT(A) has got new found knowledge that there may be a case where subsequent to the search AO may receive or obtain some addition information, which is not emanating from the search and seizure proceeding. Hence, he opined that AO can assume valid jurisdiction. This view of ld.CIT(A) is completely alien to the jurisprudence from Hon’ble Bombay High court and Hon’ble Supreme Court in this regard. It is clear that dehors incriminating material found during the search, no addition is sustainable u/s. 153A of the I.T. Act in case of unabated assessment. It is undisputed that the assessment for present assessment year is non-abated. The earlier assessment order was already duly framed and subsequently pursuant to search fresh notice u/s. 153A was issued. The AO in the assessment order has clearly noted that during the course of search proceedings, it was found that assessee was generating cash by bogus invoices. There is not a whisper about anything found relating to share application money. The issue of share application money was taken up by the AO by mentioning that on perusal of the balance sheet of the assessee, he has found the same. AO further refers that an information was obtained from FT&TR division, Mauritius Revenue authority vide letter dated 14.03.2016. When this is juxtaposed with the date of earlier assessment order i.e. 26.3.2014 and the date of search i.e. 19.3.2015, it is abundantly clear that this is a non-abated asessment and the so called material arose much after search. Hence, there is not an iota of doubt that the material being referred by the AO for making the addition was not found and seized during search. Hence, the jurisdiction of the AO in making the assessment is not legally valid. Hence, the order passed by the ld.CIT(A) as review also is totally unsustainable on merits. Hon’ble Supreme Court in the case of T.S. Balram, ITO vs. Volkart Brothers & Ors [1971 (8) TMI 3 - SUPREME COURT] has held that mistakes apparent on record must be obvious and patent mistake. It should not require a long drawn process of reasoning where there may be conceivably be two opinions. The aforesaid exp osition applies on all fours in the present case. Hence, have no hesitation in holding that this rectification order u/s. 154 passed by ld.CIT(A) is not at all sustainable. Hence, we set aside the same. Appeal of the assessee is allowed. Issues Involved:1. Legality of the rectification order passed under Section 154 of the Income Tax Act, 1961.2. Whether there was a mistake apparent from the record in the appellate order dated 31/10/2019.3. Requirement of incriminating material for making additions in completed assessments before the date of search.4. Validity of the addition of Rs. 22,69,397/- made under Section 68 of the Income Tax Act, 1961.5. Consideration of additional evidence by the CIT(A) while upholding the addition.6. Discharge of the assessee's onus to explain share capital based on legal evidence.7. Legality of the assessment order passed under Section 143(3) read with Section 153A of the Income Tax Act, 1961.8. Set-off of the addition made with the net loss assessed.9. Levy of interest under Sections 234A, 234B, and 234C of the Income Tax Act, 1961.Detailed Analysis:1. Legality of the Rectification Order under Section 154:The appeal challenges the rectification order passed by the CIT(A) under Section 154 of the Income Tax Act. The assessee argued that the delay in filing the appeal was due to the COVID-19 pandemic, which was condoned. The CIT(A) had initially quashed the AO’s order on jurisdictional grounds but later reviewed it under the guise of rectification, which the assessee contends is not permissible under Section 154, as it mandates only rectification of mistakes apparent from the record, not a review.2. Mistake Apparent from Record:The CIT(A) initially allowed the assessee's appeal on jurisdictional grounds, stating that the AO could not revisit the order without any incriminating material. However, the CIT(A) later rectified this order, arguing that crucial facts regarding new information received from Mauritius through the FTTR Division of CBDT were not considered initially. The assessee contended that no mistake apparent from the record existed, and the CIT(A)’s action amounted to an impermissible review rather than a rectification.3. Requirement of Incriminating Material:The CIT(A) initially quashed the assessment framed under Section 153A, citing that it was a non-abated assessment and the addition was made without any incriminating material found during the search. The rectification order, however, argued that the AO could use new information received post-search to make additions. The assessee maintained that, according to settled jurisprudence, no addition could be made in non-abated assessments without incriminating material found during the search.4. Validity of Addition under Section 68:The AO made an addition of Rs. 22,69,397/- under Section 68, citing that the assessee could not substantiate the creditworthiness and genuineness of the share transactions. The CIT(A) initially deleted this addition but later upheld it in the rectification order, arguing that the new information from Mauritius regarding the non-verifiable nature of the ultimate beneficiaries justified the addition. The assessee contended that the identity, creditworthiness, and genuineness of the share capital were substantiated with legal evidence, and no addition could be made without incriminating material found during the search.5. Consideration of Additional Evidence:The CIT(A) in the rectification order dismissed the additional evidence provided by the assessee, arguing that it did not substantiate the creditworthiness of the ultimate beneficiaries. The assessee argued that the additional evidence was sufficient to prove the genuineness of the transactions and the creditworthiness of the investors.6. Discharge of Onus by the Assessee:The assessee argued that it had discharged its onus to explain the share capital by providing legal evidence such as bank statements, financial statements, and Foreign Inward Remittance Certificates. The CIT(A) initially accepted this but later rejected it in the rectification order, stating that the creditworthiness of the ultimate beneficiaries was not proven.7. Legality of the Assessment Order under Section 143(3) read with Section 153A:The assessee argued that the assessment order was illegal as it was based on information obtained post-search and not on any incriminating material found during the search. The CIT(A) in the rectification order argued that the AO could use new information received post-search to make additions, a view which the assessee contended was contrary to settled jurisprudence.8. Set-off of Addition with Net Loss Assessed:The assessee argued that the addition made by the AO should be set off against the net loss assessed. The CIT(A) in the rectification order upheld the AO’s action of not allowing the set-off, which the assessee contended was unjustified and contrary to the decisions of higher judicial authorities.9. Levy of Interest under Sections 234A, 234B, and 234C:The assessee denied liability to pay interest under Sections 234A, 234B, and 234C, arguing that the levy was unjustified, unwarranted, and excessive. This issue was not elaborately discussed in the judgment.Conclusion:The ITAT allowed the assessee's appeal, setting aside the rectification order passed by the CIT(A) under Section 154, holding that the CIT(A) had impermissibly reviewed his earlier order under the guise of rectification. The ITAT reiterated that in non-abated assessments, no addition could be made under Section 153A without incriminating material found during the search, and the AO's jurisdiction to make the addition was not legally valid.