Additions under Sections 68 and 69C invalid after loan repayment accepted; reopening under Section 153A beyond six years disallowed

The ITAT Kolkata held that additions under sections 68 and 69C for unexplained loans, bogus commission, and interest payments were unsustainable as the assessee had repaid the loans in a subsequent year, which the department accepted without objection. The tribunal relied on precedent affirming that once loan repayment is accepted as genuine, additions for the year of receipt cannot be made. Further, the AO's reopening of the assessment under section 153A beyond six years was invalid since the required conditions under the fourth proviso were not met, including absence of any seized documents or evidence of escaped income exceeding the prescribed threshold. Statements relied upon by the AO were neither recorded during the search nor furnished to the assessee. Consequently, the AO's order was quashed and the assessee's appeal was allowed.

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ISSUES:

Whether additions under section 68 of the Income Tax Act, 1961, on account of unexplained cash credits (unsecured loans) can be sustained in an unabated/completed assessment year in the absence of incriminating material found during search under section 132.Whether additions under section 69C of the Act for bogus commission and bogus interest paid on unsecured loans are sustainable without incriminating evidence seized during search.Whether the Assessing Officer has jurisdiction under section 153A of the Act to reopen assessment years beyond six years (up to the tenth year) preceding the searched year without possession of incriminating material revealing undisclosed income represented in the form of assets valued at Rs. 50 lakh or more.Whether statements recorded under section 131 of the Act, not seized during search and not confronted to the assessee, can be treated as incriminating material to justify additions under section 153A.Whether repayment of unsecured loans in subsequent assessment years, accepted by the department, precludes additions in the year of receipt of such loans.

RULINGS / HOLDINGS:

In an unabated/completed assessment year, additions under section 68 cannot be made in the absence of any "incriminating material found during search" as held by the Hon'ble Supreme Court and various High Courts; additions based solely on information from return or audit report are unsustainable.Additions under section 69C for bogus commission and bogus interest paid on unsecured loans are not sustainable without incriminating material seized during search; reliance on statements not recorded during search is insufficient.Jurisdiction under section 153A to reopen assessments beyond six years (up to tenth year) is conditional upon the Assessing Officer being in possession of incriminating books of account or documents revealing undisclosed income represented in the form of assets valued Rs. 50 lakh or more, as specified in the fourth proviso to section 153A; absent such jurisdictional fact, reopening is invalid.Statements recorded under section 131, which are not seized during search and not furnished or confronted to the assessee, do not constitute incriminating material for the purpose of section 153A proceedings.Where unsecured loans taken in an assessment year are repaid in subsequent years and such repayment is accepted by the department, no addition can be made in the year of receipt of the loan as held by the Gujarat High Court.

RATIONALE:

The Court applied the legal framework under sections 132, 153A, 68, and 69C of the Income Tax Act, 1961, as well as judicial precedents including the Hon'ble Supreme Court's ruling in Pr. CIT, Central-3 vs. Abhisar Buildwell Pvt. Ltd., which clarified that in completed/unabated assessments, additions under section 153A must be based on incriminating material found during search; otherwise, such assessments cannot be reopened except under sections 147/148 subject to their conditions.The fourth proviso to section 153A, introduced by Finance Act, 2017, restricts reopening beyond six years to cases where undisclosed income represented in the form of assets valued Rs. 50 lakh or more is found during search; the Court emphasized the statutory definition of "asset" excludes liabilities and revenue items, thus additions based on liabilities like loans without corresponding undisclosed assets are invalid.The Court relied on consistent High Court and Tribunal decisions holding that mere statements or information not seized during search cannot be treated as incriminating material to invoke section 153A jurisdiction.The Court recognized that acceptance of repayment of loans in subsequent years negates the presumption of unexplained income in the year of receipt, following the principle established by the Gujarat High Court.No dissenting or concurring opinions were noted; the judgment reflects a doctrinal adherence to the principle limiting the scope of section 153A assessments in completed years to incriminating material found during search, reinforcing taxpayer protection against arbitrary reopening.

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