Assessment under section 153A invalid without incriminating material found during search proceedings

ITAT Raipur held that assessment under section 153A was invalid due to absence of incriminating material found during search proceedings conducted on 24.10.2017. The tribunal found that share application money recorded in audited books and financial statements prior to search could not constitute incriminating material. Statements of investor company directors recorded before search proceedings and director's evasive replies during search did not qualify as incriminating evidence. Additionally, the assessment order lacked valid approval under section 153D as the AO materially altered the draft order after receiving approval from Joint CIT without seeking fresh approval. The tribunal quashed the assessment order on both grounds.

---

---

Issues Involved:
1. Validity of the addition of Rs. 5.75 crore as unexplained cash credit under Section 68 of the Income Tax Act.
2. Jurisdiction of the Assessing Officer (A.O) under Section 153A in absence of incriminating material.
3. Validity of approval under Section 153D of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Validity of the addition of Rs. 5.75 crore as unexplained cash credit under Section 68 of the Income Tax Act:
The A.O had added Rs. 5.75 crore received by the assessee company from two Kolkata-based companies as unexplained cash credit under Section 68. The Commissioner of Income-Tax (Appeals) [CIT(A)] deleted this addition, holding that the share application money was genuine and supported by documentary evidence. The CIT(A) noted that the A.O failed to provide any cogent evidence to prove that the share application money was bogus or that the investor companies were shell companies. The Tribunal upheld the CIT(A)'s decision, emphasizing that the A.O did not find any incriminating material during the search to support the addition.

2. Jurisdiction of the Assessing Officer (A.O) under Section 153A in absence of incriminating material:
The assessee company argued that the A.O had no jurisdiction to make the addition under Section 153A as no incriminating material was found during the search. The Tribunal agreed with the assessee, citing the Supreme Court's decision in Pr. CIT, Central-3 Vs. Abhisar Buildwell (P) Ltd, which held that in absence of incriminating material, no addition can be made in respect of completed/unabated assessments. The Tribunal noted that the A.O's addition was based on documents and statements that were already part of the regular books of accounts and not discovered during the search. Therefore, the addition was invalid.

3. Validity of approval under Section 153D of the Income Tax Act:
The assessee contended that the approval granted by the Joint Commissioner (Jt. CIT) under Section 153D was mechanical and without application of mind. The Tribunal found merit in this argument, noting that the A.O continued the assessment proceedings even after forwarding the draft assessment order for approval, which led to significant differences between the draft and final assessment orders. The Tribunal held that the final assessment order was passed without a valid approval as required under Section 153D, rendering it invalid. The Tribunal emphasized that the Jt. CIT must apply an independent mind and verify the draft assessment order in the backdrop of the seized material before granting approval.

Conclusion:
The Tribunal allowed the cross-objections filed by the assessee and dismissed the appeals filed by the revenue. The Tribunal held that the A.O had wrongly assumed jurisdiction under Section 153A in absence of incriminating material and that the final assessment order was invalid due to the lack of a valid approval under Section 153D. Consequently, the additions made by the A.O were vacated.

---