2024 (4) TMI 386 - AT - Income Tax

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 ... Assessment u/s 153A - addition u/s. 68 - whether there was any incriminating material for the purpose of making the assessment ? - HELD THAT:- It is a well settled law that where the assessments had attained finality before the date of search and are not abated assessments in terms of proviso to Section 153A, the ld. AO can acquire jurisdiction to make the assessment or addition if there is any incriminating material found during the course of search. It is axiomatic that the ld. AO can assume jurisdiction to assess or re-asses total income only when any incriminating material is found / unearthed during search and then he can take into account those incriminating material unearthed during the course of search and other material available with the ld. AO including the income declared in the return of income. Thus, existence of incriminating material which is found in the course of search is a very foundation of acquiring jurisdiction u/s 153A in the case of unabated / completed assessment. This principle laid down by the Hon’ble Bombay High Court and Hon’ble Delhi High Court and various other High Courts have been reaffirmed by the Hon’ble Supreme Court in the case of Abhisar Buildwell Pvt.ltd [2023 (4) TMI 1056 - SUPREME COURT] as held no addition can be made in respect of the completed assessments in absence of any incriminating material. Here, in this case if there was any such information or material which was found much prior to the date of search, then the ld. AO should have reopened the assessment after exercising the powers u/s. 147 / 148 subject to the fulfillment of the conditions and limitations provided u/s. 147/ 148 and these powers are specifically saved u/s. 153. Instead of resorting to action u/s. 147 / 148, ld. AO has proceeded to use pre-search enquiry and information within the scope of Section 153A which cannot be referred as incriminating material found in the course of search. As stated above in the course of search, in so far as statement of the promoter also there is nothing incriminating and the only material which has been found with the ledger account of certain share application money which cannot be held to be incriminating and this has been held so in the case of Param Dairy Ltd. [2021 (2) TMI 764 - DELHI HIGH COURT] wherein it has been held that audit report, cash book, ledger book, bank book and the books of accounts maintained regularly by the assessee if it has been seized and found during the course of search cannot be treated as incriminating material because regular books of accounts by no stretch of imagination could be treated as incriminating material form basis of framing assessment u/s. 153A. Here in this case same very books of account and ledger have been subject matter of scrutiny in assessment proceedings u/s 143(3) much prior to the date of search as noted above. Thus, on the facts and circumstances of the case and the principle of law as laid down by the Hon’ble Apex Court which has been followed by the ld. CIT (A) as incorporated above is upheld - Decided against revenue. Addition made u/s 68 - assessee could not prove the genuineness of the transaction and creditworthiness of lender company - CIT(A) deleted addition - HELD THAT:- In so far as allegation of the ld. AO that lender and shareholders were not found at the address of the Kolkata becomes irrelevant when assessment has been done from the same address and also brought on record that address of the lender company had already shifted to Mumbai which is also evident from the order of the present AO in the case of the lender company wherein he has passed assessment order on 31/12/2019 i.e. the same date of order which has been passed in the case of the assessee. Thus, ld. AO was very well aware that this company’s address has been changed and therefore, stating that this company was not found in Kolkata at the time of enquiry has no relevance. Then how did he pass the assessment in case of this company without drawing any adverse inference in that case. Apart from that, even in the earlier years, notices u/s. 143(2) and other statutory invoices for the purpose of assessment u/s. 143(3) was issued and served u/s. 143(3) was issued and served on the same address earlier then how can it be inferred that this company was non-existing. CIT (A) has also examined the immediate source of funds in the hands of the lender company which was received from sale of unquoted shares of various companies and in support of which, ITR, financial statements and bank statements and confirmation of the parties were submitted, including consideration paid by the lender company for the purchase of unquoted shares and sale were also filed before the ld. AO during the remand proceedings which has been duly examined by the ld. CIT(A). Nowhere, AO has inquired about the source and veracity of the source of the funds of the lender company, albeit it has been accepted in the order passed u/s 143(3). Thus, it cannot be held that source of the source has not been proved by the assessee. Accordingly, the aforesaid finding of the ld. CIT (A) is affirmed. Appeal of the Revenue is dismissed. Disallowance u/s 14A - assessee has not earned any exempt income during the year under consideration - HELD THAT:- Once it is an admitted fact that there is no exempt income earned by the assessee, then no disallowance u/s. 14A can be made. This issue stands covered by the decision of M/s. Nirved Traders Pvt. Ltd. [2019 (4) TMI 1738 - BOMBAY HIGH COURT] and catena of other judgments of Hon’ble High Courts including Hon’ble Madras High Court in the case of Chettinad [2017 (4) TMI 298 - MADRAS HIGH COURT] Hon’ble Delhi High Court in the case of Era Infrastructure (India) Ltd [2022 (7) TMI 1093 - DELHI HIGH COURT] held that amendment brought in Section 14A w.e.f. 01/04/2022 is not retrospective. Accordingly, the order of the ld. CIT(A) is confirmed. Disallowance u/s. 14A while computing book profit u/s. 115JB also is covered by the various decisions and including the Special Bench in the case of Vireet Investments P Ltd [2017 (6) TMI 1124 - ITAT DELHI] and in the case of Bhushan Steel Ltd [2015 (9) TMI 1424 - DELHI HIGH COURT], accordingly, no disallowance can be made u/s. 14A while computing book profit u/s. 115JB. Accordingly, appeal of the Revenue is dismissed. 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 MaterialThe 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 MaterialThe 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 153AThe 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 LenderThe 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 14AThe 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.