2025 (8) TMI 1743 - AT - Income Tax

Section 68 Addition Deleted; No 153A Assessment Without Incriminating Material in Alleged Bogus Share Sale Case

ITAT Kolkata dismissed the Revenue's appeals and allowed the assessee's cross-objection. It upheld the CIT(A)'s deletion of addition u/s 68 on alleged ... Unexplained Cash credit u/s 68 - transactions of sale of shares were not genuine and creditworthiness of the parties were not proved - as alleged assessee introduced unaccounted funds in the guise of sale of investments - CIT (A) allowed the appeal of the assessee by directing the ld. AO to delete the addition while directing simultaneously to make an addition towards net profit at the rate of 5% of the said sale consideration, which the assessee may have earned. HELD THAT:- The assessee has filed all the evidences qua the purchasers such as ITRs, names, addresses, audited balance sheets, bank statements, confirmations, etc. proving the identity, creditworthiness of the purchasers and genuineness of the transactions. We note that even the purchasing companies have filed their evidences as called for by the AO comprising all the evidences as stated above. CIT (A) has recorded a finding of fact that apart from the assessee, purchasing companies had also filed all the evidences before the ld. AO however AO had not brought on record any independent and substantive evidences pointing out any defect or deficiency in the said evidences. CIT (A) finally noted that the assessee has proved the identity and creditworthiness of the parties and also the genuineness of the transactions by filing all these documents and thus, discharged its initial burden. Besides, we note that nothing incriminating was found and seized during the course of search. CIT (A) also noted that the department has accepted all these investments in the earlier assessment years, even in the scrutiny assessments and had not drawn any adverse interference. No infirmity/anomaly in the appellate order of the CIT (A), who has passed a very reasoned and speaking order after following the decision of Dataware Private Ltd. [2011 (9) TMI 175 - CALCUTTA HIGH COURT] and M/s Swarna Kalash Commercial Pvt. Ltd. [2023 (9) TMI 1725 - ITAT KOLKATA] Since, the facts of the case before us vis-à-vis, facts of the decisions cited above are substantially similar and therefore, we respectfully following the ratio laid down in the above decisions upheld the order of CIT (A) on this issue by dismissing the appeal of the Revenue. Addition @ 5% - We find that the ld. CIT (A) has not given any basis for such direction to the ld. Assessing Officer. CIT (A) has just acted on the presumptions and surmises and thus, presumed that the assessee might have made some profits from sale by investments. In our opinion, the said direction by the ld. CIT (A) is without any substantive basis and therefore cannot be sustained. Accordingly, we set aside the order of ld. CIT(A) to the extent of this direction of making addition @ 5%. Accordingly, the cross objection of the assessee is allowed. Assessment u/s 153A - unabated assessments - We have perused the assessment orders as well as the appellate orders for all the above assessment years and found that there is no even whisper of any incriminating material seized during the course of search qua the additions made. Therefore, we do not find any infirmity in the order of the CIT (A) and accordingly, uphold the same. The case of the assessee is also squarely covered by the decision of Abhisar Buildwell P. Ltd. [2023 (4) TMI 1056 - SUPREME COURT] wherein it has been finally settled that no additions can be made by the AO in assessments u/s 153A without seized incriminating materials. Accordingly, the appeals by the revenue are dismissed. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether the sale proceeds of unlisted equity shares received during the relevant assessment year could be treated as unexplained cash credits under section 68 of the Act. 1.2 Whether, after holding the impugned share sale transactions to be genuine, an estimated addition at 5% of the sale consideration towards embedded net profit was legally sustainable. 1.3 Whether, in assessments framed under section 153A for years in which assessments had attained finality (unabated assessments), additions could be made in the absence of incriminating material found and seized during search. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Taxability of sale proceeds of unlisted shares under section 68 Legal framework (as discussed) 2.1 The Assessing Officer invoked section 68 on the ground that the sale of unlisted equity shares was not genuine and that the purchasers lacked creditworthiness and genuineness. The appellate authority and the Tribunal proceeded on the settled principle that the assessee must prima facie establish identity, creditworthiness and genuineness, whereafter the onus shifts to the Revenue. Interpretation and reasoning 2.2 The Tribunal recorded that substantial share capital and share premium were raised by the assessee in earlier years and the entire funds were invested in unlisted equity shares in a subsequent year. Those share capital, share premium and investments were accepted by the Department in earlier assessments, including scrutiny assessments, with no adverse inference at any stage. 2.3 It was noted that the investments in unlisted shares, made in the earlier year, were partly sold during the year under consideration at cost, yielding sale consideration of a specified amount. These investments had consistently formed part of the balance sheet and had never been doubted in prior years, including years where scrutiny assessments were completed. 2.4 The Tribunal concurred with the appellate authority's finding that the assessee had furnished complete evidences relating to the purchasers and the sale transactions-returns of income, audited financial statements, bank statements, confirmations and other documents-sufficient to establish identity, creditworthiness of the purchasers and genuineness of the transactions. 2.5 It was further recorded that the purchasing entities, barring one, were on the tax records, had filed returns of income, and their returns were processed by the Department. The Assessing Officer did not bring on record any substantive material or defect in the evidences submitted either by the assessee or by the purchaser companies, despite having made enquiries. 2.6 The Tribunal noted that no incriminating material relating to the impugned sale of investments was found or seized during the search. The Assessing Officer essentially relied upon circumstantial material such as characterisation of earlier share subscribers as 'shell/paper companies', general modus operandi allegations, and statements recorded in other connected search proceedings. 2.7 The Tribunal accepted the appellate authority's reliance on prior judicial precedents of the jurisdictional High Court and coordinate benches, holding that once the source of investment (earlier accepted share capital/premium) and the existence of investments are accepted in scrutiny assessments, the subsequent sale proceeds of those investments-received through banking channels and backed by regular documentation-cannot ordinarily be treated as unexplained cash credits in the absence of contrary material. Conclusions 2.8 The Tribunal upheld the appellate authority's finding that the assessee had discharged its onus under section 68 by proving identity and creditworthiness of the purchasers and genuineness of the transactions, and that the Assessing Officer failed to rebut these with any cogent contrary evidence. 2.9 The addition of the entire sale consideration as unexplained cash credit under section 68 was held to be unsustainable and was deleted. Issue 2: Legality of ad hoc addition of 5% of sale consideration as net profit Interpretation and reasoning 2.10 While deleting the section 68 addition, the appellate authority had directed the Assessing Officer to treat 5% of the sale consideration as net profit from the impugned sale of investments, on the premise that some profit must have been earned. 2.11 The Tribunal examined the record and found that the appellate authority had not indicated any factual basis, comparative data, or material to support the specific rate of 5%, and had proceeded purely on presumption and surmise that the assessee 'may have' earned profit. 2.12 The Tribunal contrasted this with coordinate-bench decisions where estimation of profit at 5% was made after detailed factual analysis of business patterns and movement of investments; it held that such estimation cannot be mechanically transplanted without independent reasoning in the present case. Conclusions 2.13 The Tribunal held that, once the sale transactions were accepted as genuine investments realised at cost and no specific defect was pointed out in the declared figures, there was no legal basis to make an arbitrary profit estimation. 2.14 The direction to add 5% of the total sale consideration as net profit was set aside as being without substantive basis, and the assessee's cross-objection on this issue was allowed. Issue 3: Scope of assessment under section 153A for unabated years without incriminating material Legal framework (as discussed) 2.15 For multiple assessment years, assessments were completed under section 143(1); the statutory time limit for issue of notice under section 143(2) had expired prior to the date of search, making such years 'unabated' on the date of search. The Tribunal examined whether additions could be made in such years in assessments under section 153A in the absence of incriminating material found during search. 2.16 The Tribunal applied the law laid down by the Supreme Court that, in respect of unabated assessments, no addition can be made under section 153A unless based on incriminating material found and seized during the course of search. Interpretation and reasoning 2.17 On examining the assessment orders and appellate orders for the relevant years, the Tribunal found that there was no reference, even by way of a 'whisper', to any incriminating material discovered during search pertaining to the additions made for those years. 2.18 The appellate authority had, on this legal ground alone, held that the Assessing Officer lacked jurisdiction under section 153A to disturb completed (unabated) assessments in the absence of incriminating material. The Tribunal observed that this finding was uncontroverted on facts. 2.19 The Tribunal also noted that Revenue's appeals targeted the deletion of additions 'on merits', without disturbing or effectively challenging the foundational legal finding that the assessments were unabated and unsupported by incriminating material. Conclusions 2.20 The Tribunal affirmed that, for unabated assessment years, the Assessing Officer could not make additions under section 153A in the absence of incriminating material found and seized during search. 2.21 The orders of the appellate authority deleting additions for such years were upheld, and the Revenue's appeals on these years were dismissed in toto. 2.22 Corresponding cross-objections of the assessee, to the extent they challenged residual additions or directions not sustainable under the above legal principles, were allowed.