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Facts
The AO reopened assessment u/s 147 based on information that the assessee availed unsecured loans from shell companies for accommodation entries and paid on-money for a property. The AO made additions for unexplained cash credit and unexplained expenditure. For subsequent assessment years, proceedings were initiated u/s 153A based on a search and seizure operation, where additions were made for alleged bogus unsecured loans.
Held
The Tribunal held that the reassessment proceedings u/s 147 were invalid as the additions made had no nexus with the reasons recorded for reopening. For assessment years under section 153A, the additions were unsustainable as they were not based on any incriminating material found during the search.
Key Issues
1. Validity of reopening of assessment u/s 147 when additions made have no nexus with reasons recorded. 2. Whether additions made u/s 153A are sustainable without incriminating material found during search and seizure.
Sections Cited
147, 139(1), 143(1), 132, 68, 143(3), 151, 148, 153A, 133A, 153C, 132(4)
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Income Tax Appellate Tribunal, “G” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY, VP & SHRI NARENDRA KUMAR BILLAIYA, AM
Kumaon Engg. Co. Pvt. Ltd.
Nextgen Infotel Pvt. Ltd. 4. Kasturi Towers Ltd. 5. Sulabh Resources Pvt. Ltd. which are bogus concerns, without doing any genuine business activities. Based on such search and seizure operation, proceedings u/s. 153A of the Act were initiated on 11.01.2019. Pursuant to the notice issued u/s. 153A of the Act, the assessee participated in the assessment proceedings. In course of the assessment proceedings, the A.O. called upon the assessee to explain why the unsecured loan taken by way of accommodation entries and the notional interest thereon should not be treated as undisclosed income of the assessee and added to its income. In response to the query raised by the A.O., the assessee emphatically denied of having taken unsecured loan by way of accommodation entries.
However, rejecting assessee’s contention, the A.O. treated the unsecured loan availed by the assessee as ‘unexplained cash credit u/s. 68 of the Act’ and computed notional interest allegedly paid by the assessee on such loan and added to the income. These additions were made across all the assessment years in dispute before us.
At the outset, ld. Counsel appearing for the assessee submitted that as on the date of search carried out on assessee, the assessment proceedings for none of the years were pending. Therefore, there are no abated assessments. Drawing our attention to the discussions made in the assessment orders, the ld. Counsel submitted, the A.O. has not referred to even a single incriminating material having any connection with the assessment /additions made. Simply referring to the balance sheet of the assessee and the statement recorded by the Investigation Wing from third parties, with whom the assessee has absolutely no connection, the A.O. has made the additions in assessments completed u/s. 153A of the Act. He submitted, neither the balance sheet nor the statement recorded from a third party in course of some other proceeding, cannot be treated as incriminating material found as a result of search and seizure operation conducted in case of the assessee.
Therefore, the additions made in absence of any incriminating material are unsustainable.
In support of such contention, ld. Counsel relied upon the decision of Hon'ble Supreme Court in case of PCIT vs. Abhisar Buildwell [P] Ltd. [2023] 149 taxmann.com 399 [SC].
Proceeding further, he submitted, in case, the A.O. was of the view that the statements recorded in course of search and seizure operation conducted in case of some third parties, such as, Shri Jagdish Purohit and others, he could have utilized such material by initiating proceedings u/s. 153C of the Act and not u/s. 153A of the Act. Without prejudice, he submitted, the statement recorded u/s. 132(4) of the Act is not in the nature of incriminating material. In support of such contention, he relied upon the following decisions:
ITO v. Vikram Sujitkumar Bhatia [2023] 149 taxmann.com 123 (SC) dated 28/03/2023.
Per contra, the learned Departmental Representative ('ld. DR' for short) submitted though the A.O. has not referred to any other incriminating material, except the balance sheet of the assessee and the statement recorded from some individuals however, they constitute incriminating material. He submitted, since the falsify of claim made by the assessee with regard to the unsecured loan is revealed from the balance sheet and the statements recorded from third parties in course of search and seizure operation, they constitute incriminating material.
We have considered rival submissions and perused the materials available on record. We have also applied our mind to the decisions relied upon. The following facts available on record are undisputed:
i. On 06.10.2017, a search and seizure operation u/s. 132 of the Act was carried out on the assessee. ii. As on the date of search, no assessment proceeding for A.Ys. 2012-13 to 2016-17 were pending. iii. The additions made are based on balance sheet of the assessee and statements recorded from third party individuals. Except these materials/evidences, the A.O., while making the additions, have not referred to any other incriminating materials/evidences.
On perusal of the impugned assessment order, it is very much clear that the additions made by the A.O. in all these years are on account of unexplained cash credit u/s. 68 of the Act, representing alleged bogus unsecured loans and payment of interest by the assessee on such loan. Therefore, the issue which arises for consideration is - whether these additions can be stated to have been made based on any incriminating material found as a result of search and seizure operation. Undoubtedly, the assessment order for the impugned assessment years have been passed u/s. 143(3) r.w.s. 153A of the Act. Thus, invoking of provision contended u/s. 153A of the Act, pre-supposes that the assessment is pursuant to search and seizure operation carried out in case of the assessee. It is fairly well settled proposition of law that in an unabated assessment proceeding u/s. 153A of the Act, any addition made has to be based on incriminating material found as a result of search and seizure operation.
As discussed earlier, facts on record reveal that the additions are primarily based on the balance sheet of the assessee and statements recorded in course of some other proceedings from some Kolkata based third party individuals. As far as balance sheet of the assessee is concerned, they are based on books of accounts of the assessee, already disclosed to the department through return of income and its report filed for the relevant assessment years. It is also a fact on record that the loans availed by the assessee during the relevant assessment years are not only recorded in the books of accounts, but are also reflected in the balance sheet, which have been disclosed to the department in regular course. Therefore, in our view, they would not constitute incriminating material found as a result of search and seizure operation carried out on the assessee. The incriminating material has to be of such nature, which the assessee must not have disclosed to the department and which the department unearths in course of search and seizure operation conducted in case of the assessee. As far as the statements recorded from some Kolkata based third parties in course of proceedings unconnected to the search and seizure operation carried out in case of the assessee, in our view, they would not constitute incriminating material found as a result of search and seizure operation conducted u/s. 132 r.w.s. 153A of the Act in case of the assessee.
Therefore, in our view, the disputed additions made in the afore-said assessment years are not based on any incriminating material found as a result of search and seizure operation carried out u/s. 153A of the Act in case of the assessee. That being the factual position emerging on record, applying the binding ratio laid down by the Hon'ble Supreme Court in case of Abhisar Buildwell [P] Ltd. (supra), we have no hesitation in holding that the impugned additions made by the A.O. are legally unsustainable. Accordingly, the A.O. is directed to delete the additions. In view of our decision above, all other issues raised by the assessee by way of main as well as additional grounds having rendered academic, do not require adjudication at this stage, hence, are kept open.
In the result, the appeals are allowed as indicated above.