2023 (9) TMI 883 - AT - Income Tax

Tribunal emphasizes need for tangible evidence in tax appeals under Section 153A

Mahesh Reddy Althuri, Radhika Reddy Althuri, Girish Reddy Althuri, Latha Reddy Althuri Versus ACIT, Central Circle-2 (1), Hyderabad

The Tribunal allowed the appeals, holding that in the absence of incriminating material, no addition could be made under Section 153A. The Tribunal ... Assessment u/s 153A - nexus between the statement recorded and the evidence/material found during search in order to for an assessment to be based on the statement recorded - HELD THAT:- AO was neither in possession of books of accounts nor other documents or evidence, at the time of reassessment which shows any escapement of amount reflected in the assets head. Admittedly, the term ‘Asset’ was defined under Explanation 2, which include immovable property being land or building or both, shares and securities, loans and advances, deposits in bank account. In the present case, the assessee has purchased 5000 shares on 27.10.2009 and 14.12.2009 of M/s. Astha Tradelink Private Limited for Rs.400/- each. Thereafter, those 5000 shares were converted into 1,90,000/- shares of M/s. Twenty First Century Private Limited and the assessee sold part of the shares in A.Y. 2011-12 relevant to A.Y. 2012-13 and earned capital gains of Rs. 5,96,11,906/-. Thus, during the assessment year, the column ‘Asset’ does not show either the investment in the immovable property being land or building or both, shares and securities, loans and advances. In the absence of any asset being in possession of the assessee, the Assessing Officer shall not have issued the notice to the assessee for making the addition u/s 153A of the Act. In view of the above, the addition made in the hands of the assessee is liable to be deleted. There is one more reason to come to the conclusion that the Assessing Officer should have made more efforts to bring on record some tangible material besides the statement of the assessee namely, A. Mahesh Reddy to show that the assessee has agreed to pay the profit during the assessment year under consideration and would be ready to forego the claim made by the assessee at assessment stage during the course of original assessment proceedings. The statement given by the assessee or the director of M/s. Twenty First Century Securities Limited, does not bind the assessee unless it is duly supported by the cogent incriminating material and we find merit in the arguments of the ld.AR who had relied on the decision of CIT vs. Shri Ramdas Motor Transport Limited [2014 (11) TMI 513 - ANDHRA PRADESH HIGH COURT] and also the decisions Best Infrastructure (India) Pvt. Ltd., [2017 (8) TMI 250 - DELHI HIGH COURT] and CIT Vs. Harjeev Aggarwal [2016 (3) TMI 329 - DELHI HIGH COURT] - Decided in favour of assessee. Issues Involved:1. Legality of notice issued under Section 153A and the consequent assessment order.2. Validity of assessment in absence of incriminating material found during search.3. Reliance on the fourth proviso to Section 153A for extending the limitation period.4. Violation of principles of natural justice due to lack of opportunity for cross-examination.5. Addition under Section 68 of the Income Tax Act, 1961 in respect of net long-term capital gain.Summary:1. Legality of Notice Issued Under Section 153A:The assessees argued that the notice issued under Section 153A and the consequent assessment order were illegal, bad in law, barred by limitation, or void for want of jurisdiction. The Tribunal noted that a search and seizure operation was conducted, and the case was notified to the Central Circle. The Assessing Officer issued a notice under Section 153A and completed the assessment.2. Validity of Assessment in Absence of Incriminating Material:The assessees contended that no incriminating material was found during the search, and thus, no addition could be made. The Tribunal emphasized that no reference to any incriminating material was made by the Assessing Officer or CIT(A). The Tribunal relied on the Supreme Court decision in PCIT Vs. Abhisar Buildwell Pvt. Ltd., which held that in the absence of incriminating material, no addition can be made in respect of completed assessments.3. Reliance on the Fourth Proviso to Section 153A:The CIT(A) relied on the fourth proviso to Section 153A, which allows for assessment beyond six years if the Assessing Officer has evidence of income escaping assessment amounting to fifty lakh rupees or more. However, the Tribunal found that the Assessing Officer neither possessed books of accounts nor other documents or evidence showing escapement of income represented in the form of assets.4. Violation of Principles of Natural Justice:The assessees argued that the CIT(A) relied on statements obtained behind their back without affording an opportunity for cross-examination, violating principles of natural justice. The Tribunal noted that the statements of brokers did not specifically mention the assessees and that no incriminating material was found during the search.5. Addition Under Section 68 of the Income Tax Act:The Assessing Officer made an addition of Rs. 5,96,11,906/- under Section 68, based on the alleged bogus long-term capital gains from penny stocks. The Tribunal found that the addition was made without any incriminating material found during the search and was based solely on statements and reports not directly related to the assessees.Conclusion:The Tribunal allowed the appeals, holding that in the absence of incriminating material, no addition could be made under Section 153A. The Tribunal emphasized the need for tangible evidence to support any addition, reiterating the principles laid down by the Supreme Court and various High Courts.