Assessment under Section 153A requires incriminating material from search for completed assessments, regular books insufficient

The ITAT Mumbai held that assessment u/s 153A requires incriminating material found during search for completed assessments. Since no incriminating material was discovered and regular books of accounts cannot constitute incriminating evidence, the AO lacked jurisdiction. The addition u/s 68 was deleted as the CIT(A) properly verified the lender company's genuineness and creditworthiness, noting the company had shifted addresses and the AO had previously accepted similar transactions. Disallowance u/s 14A was rejected since no exempt income was earned during the relevant year. Revenue's appeal was dismissed.

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Issues Involved:
1. Whether the statement recorded u/s 132(4) constitutes incriminating material.
2. Whether the ledger account and other documents found during the search constitute incriminating material.
3. Whether the additions made by the AO are beyond the scope of section 153A.
4. Whether the assessee proved the identity, creditworthiness, and genuineness of the lender.
5. Whether disallowance u/s 14A is justified when no exempt income is earned.

Summary:

Issue 1: Statement Recorded u/s 132(4) as Incriminating Material
The Revenue argued that the statement recorded u/s 132(4) constitutes incriminating material. The Tribunal noted that the statement alone cannot justify additions unless supported by corroborative evidence. The Delhi High Court in PCIT vs. Anand Jain and CIT vs. Harjeev Agarwal held that statements u/s 132(4) without corroborative evidence do not constitute incriminating material.

Issue 2: Ledger Account and Other Documents as Incriminating Material
The AO considered the ledger account and other documents found during the search as incriminating material. The Tribunal observed that these documents were part of the regular books of accounts and were already scrutinized during the original assessment proceedings u/s 143(3). The Delhi High Court in Param Dairy Ltd. held that regular books of accounts cannot be treated as incriminating material.

Issue 3: Additions Beyond the Scope of Section 153A
The Tribunal upheld the CIT(A)'s finding that the additions made by the AO were beyond the scope of section 153A as they were not based on any incriminating material found during the search. The Supreme Court in Abhisar Buildwell Pvt. Ltd. held that no addition can be made in respect of completed assessments in the absence of any incriminating material.

Issue 4: Identity, Creditworthiness, and Genuineness of the Lender
The AO added Rs. 28 Crores u/s 68, questioning the creditworthiness of the lender, M/s. Integral Distributors LLP. The CIT(A) found that the assessee provided confirmation, ITR, financials, and bank statements of the lender. The lender's assessment u/s 143(3) did not draw any adverse inference. The Tribunal affirmed the CIT(A)'s finding that the assessee proved the identity, creditworthiness, and genuineness of the lender.

Issue 5: Disallowance u/s 14A
The AO made a disallowance u/s 14A r.w.r. 8D despite the assessee not earning any exempt income. The CIT(A) deleted the disallowance, relying on the Bombay High Court's decision in M/s. Nirved Traders Pvt. Ltd. and other judgments, holding that no disallowance u/s 14A can be made when no exempt income is earned. The Tribunal affirmed this view.

Conclusion:
The Tribunal dismissed the Revenue's appeals and upheld the CIT(A)'s orders, emphasizing that additions u/s 153A must be based on incriminating material found during the search and that no disallowance u/s 14A should be made in the absence of exempt income. The Cross Objections of the assessee were dismissed as infructuous.

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