2025 (10) TMI 285 - AT - Income Tax

Additions of unsecured loans under s.68 deleted in s.153A search assessment where no incriminating material found

ITAT (DELHI - AT) held in favour of the assessee: additions of unsecured loans as unexplained cash credits under s.68 in a s.153A search assessment were ... Assessment u/s 153A - Addition u/s 68 - whether Incriminating material found during the course of search, qua the unsecured loans received from four parties? - HELD THAT:- In the instant case, the loans borrowed from four parties were sought to be added as unexplained cash credit under section 68 of the Act by the AO in the search assessment framed under section 153A of the Act. But there was absolutely no search material or incriminating material found during the course of search of the assessee, qua those additions made under section 68 of the Act. Further this fact is also upheld in the case of sister concern of assessee in Genus Apparels Ltd [2024 (11) TMI 1517 - ITAT DELHI] where similar addition pursuant to same search was made. Hence, since the assessment year 2013-14 being an unabated / completed assessment, the earlier assessment though framed under section 143(1) of the Act could not be disturbed by the learned AO while framing the search assessment under section 153A of the Act as admittedly there is no incriminating material found during the course of search, qua the unsecured loans received from four parties. This issue is no longer res integra in view of the decision of Abhisar Buildwell Private Limited [2023 (4) TMI 1056 - SUPREME COURT] - Decided in favour of assessee. ISSUES PRESENTED AND CONSIDERED 1. Whether the Tribunal should condone the delay in filing the appeal where sufficient cause is shown. 2. Whether a search assessment framed under section 153A read with section 143(3) can disturb a prior completed/unabated assessment in respect of additions (loans treated as unexplained cash credit under section 68) in the absence of any incriminating material discovered in the search. 3. Whether, in an abated assessment (pending on date of search), loans received and treated as unexplained cash credit under section 68 can be sustained where identity, genuineness and source (creditworthiness) of lenders are subsequently established by documentary evidence and by responses to notices (including proceedings under section 133(6) and remand report). ISSUE-WISE DETAILED ANALYSIS Issue 1 - Condonation of Delay in Filing Appeal Legal framework: The Tribunal has jurisdiction to condone delay in filing appeals where sufficient cause is shown, in order to serve substantial justice. Precedent treatment: The Tribunal exercised discretion to condone delays based on factual reasons presented by the appellant; no specific appellate precedent was cited in the impugned order for this point. Interpretation and reasoning: The Tribunal examined the reasons in the delay condonation petition and found that the assessee had shown sufficient cause for the 381-day delay. In the interests of substantial justice the delay was condoned and the appeal admitted for adjudication. Ratio vs. Obiter: Ratio - the Tribunal's exercise of discretion to condone delay where sufficient cause is demonstrated is a decision of the Tribunal in the present proceedings; it forms part of the operative order admitting the appeal. Conclusion: Delay was condoned and the appeal admitted for adjudication. Issue 2 - Power to Disturb Completed/Unabated Assessment in Search Assessment when No Incriminating Material Exists (Applicability of s.153A to Unabated Assessments and Requirement of Incriminating Material) Legal framework: Section 153A enables assessment/updating/history of assessments following search or seizure, but existing completed assessments (unabated) ordinarily cannot be disturbed unless incriminating material is found during the search justifying reopening/variation of the prior assessment. Section 68 deals with unexplained cash credits requiring satisfaction as to identity, genuineness and source/creditworthiness of creditor. Precedent treatment: The Tribunal followed Supreme Court authority (referred to as Abhisar Buildwell Pvt Ltd) and a coordinate bench decision involving a sister concern where a similar addition pursuant to the same search was deleted because no incriminating material was found in respect of unsecured loans. Interpretation and reasoning: The Tribunal noted that for AY 2013-14 the assessment had been already completed before the search (thus an unabated/completed assessment). The Assessing Officer, when framing the search assessment under section 153A r.w.s. 143(3), made additions treating certain loans as unexplained cash credits under section 68. The Tribunal held that disturbance of a completed assessment in a search assessment is permissible only where incriminating material is found during the search specifically in respect of the additions proposed. In the instant facts there was no incriminating or search material connecting the unsecured loans to undisclosed sources; the AO had not produced any incriminating material discovered in the search to justify reopening. The Tribunal therefore applied the principle from the cited Supreme Court authority and deleted the entire addition of Rs 4 crores made under section 68 for AY 2013-14. Ratio vs. Obiter: Ratio - Where an assessment year is a completed/unabated assessment at the time of search, additions in a subsequent search assessment that disturb that completed assessment can be sustained only if incriminating material pertaining to those additions was discovered in the search; absent such incriminating material, the additions must be deleted. This is the operative holding followed and applied. Conclusion: Deletion of the addition under section 68 for the unabated assessment year was warranted; the taxpayer's additional ground was allowed and the revenue's appeal dismissed for that year. Issue 3 - Treatment of Loans as Unexplained Cash Credits in an Abated Assessment Where Identity, Genuineness and Source are Later Established by Documentary Evidence and Responses to Notices (s.68; role of s.133(6) and remand report) Legal framework: Section 153A applies to assessments pending on the date of search (abated assessments). Section 68 requires the assessee to establish identity of the creditor, genuineness of the loan transaction and the creditor's source/creditworthiness. Procedural tools include inquiry under section 131(1)(d) and section 133(6) to summon or obtain information from third parties; remand reports and admission of additional evidence before the Commissioner of Income Tax (Appeals) are part of appellate fact-finding. Precedent treatment: The Tribunal relied on the remand process and on the principle that once the AO accepts the genuineness of transactions on merits in remand proceedings, the revenue cannot maintain appeal against that acceptance; a Madras High Court authority (B Jayalakshmi v. ACIT) was cited for the proposition that acceptance by AO on merits in remand undermines revenue's grievance. Interpretation and reasoning: For AY 2014-15 (abated at time of search), the AO initially treated loans from two parties as unexplained under s.68 based on field inquiry reports that the lenders were not traceable. Before the CIT(A) the assessee produced additional documents; the CIT(A) admitted them and sought a remand report. The remand proceedings revealed that notices under s.133(6) issued on 29-01-2019 were responded to directly by the purported lenders, who furnished ledger accounts, ITRs, audit reports and bank statements and confirmed the loan transactions. The AO's remand report accepted these documents and confirmed lenders' statements. The CIT(A) evaluated audited accounts and turnover figures of the lenders to conclude creditworthiness and affirmed that identity, genuineness and source were established. The Tribunal found no infirmity in the CIT(A)'s deletion of the s.68 additions, and further held that once the AO accepted the loans as genuine on merits in remand proceedings, the revenue had no ground to maintain an appeal; thus the revenue's appeal was dismissed both on merits and on the technical ground of AO acceptance in remand. Ratio vs. Obiter: Ratio - In an abated assessment, where the assessee produces credible documentary evidence and third-party confirmations (including responses to s.133(6) notices) establishing identity, genuineness and source/creditworthiness of creditors, the requirements of section 68 are satisfied and additions treating such entries as unexplained cash credits cannot be sustained. Additionally, acceptance by the AO of the genuineness on merits in remand proceedings is authoritative and precludes successful challenge by the revenue. Conclusion: The deletion of additions under section 68 for the abated assessment year was upheld; the revenue's appeal was dismissed. Cross-References Refer to Issue 2 for the distinct treatment between unabated/completed assessments (where incriminating search material is a prerequisite to disturb prior assessment) and Issue 3 for abated/pending assessments (where post-search factual enquiries and production of documentary evidence, including third-party confirmations under s.133(6) and remand reports, determine satisfaction under section 68).