DY.COMM OF INCOME TAX CENTRAL CIRCLE-7(2), MUMBAI vs. M/S. NETALTER SOFTWARE LTD, MUMBAI

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ITA 1764/MUM/2022Status: DisposedITAT Mumbai21 November 2022AY 2010-118 pages
AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that for concluded assessments, additions can only be made based on incriminating material found during a search. A third party's statement alone, without corroborating evidence found during the search, cannot be considered incriminating material.

What were the facts?

During a search, the AO made additions to the assessee's income based on a director's statement admitting that share premium was not genuine. The CIT(A) deleted these additions, holding that the statement was not incriminating material for concluded assessments.

What were the issues?

Whether a statement recorded under Section 132(4) can be considered incriminating material for making additions to concluded assessments under Section 153C without any other corroborating evidence found during the search.

Which sections of the Income-tax Act were involved?

Section 132,Section 153C,Section 143(3)

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Cases cited in this judgment(4)Show list

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Income Tax Appellate Tribunal, “B” BENCH, MUMBAI

Before: SHRI PRASHANT MAHARISHI, AM & SHRI PAVAN KUMAR GADALE, JM

For Appellant: Shri. Rajiv Khandelwal, CA
For Respondent: Dr. Mahesh Akhade, CIT DR
Hearing: 10.11.2022Pronounced: 21.11.2022
1.

These are three appeals filed by DCIT Central Circle 7(2) Mumbai (The Ld. AO) for A.Y. 2008-09, 2010-11 and 2013-14 in case of Netalter Software Limited[ Assessee]

2.

Identical ground of appeal is raised in all these appeals as under: (Assessment Year 2013-14) “i. Whether on the facts and circumstances of the case and in law, the Ld CIT(A) has erred in deciding that the assessment u/s 153C was done solely on the basis of statement recorded under section 132(4) of the Act by ignoring the fact that statement recorded under section 132(4) of the Act has an evidentiary value and is an incriminating material on the basis of which the revenue can rely to do additions in case of the assessee.

ii. Whether on the facts and circumstances of the case and in law, the Ld CIT(A) has failed to discuss the merits of the case wherein the assessee has brought its unaccounted income into its books of account.”

(Assessment Year 2010-11) “i. Whether on the facts and circumstances of the case and in law, the Ld CIT(A) has erred in deciding that the assessment u/s 153C was done solely on the basis of statement recorded under section 132(4) of the Act by ignoring the fact that statement recorded under section 132(4) of the Act has an evidentiary ii. Whether on the facts and circumstances of the case and in law, the Ld CIT(A) has failed to discuss the merits of the case wherein the assessee has brought its unaccounted income into its books of account.”

(Assessment Year 2008-09) “i. Whether on the facts and circumstances of the case and in law, the Ld CIT(A) has erred in deciding that the assessment u/s 153C was done solely on the basis of statement recorded under section 132(4) of the Act by ignoring the fact that statement recorded under section 132(4) of the Act has an evidentiary value and is an incriminating material on the basis of which the revenue can rely to do additions in case of the assessee. ii. Whether on the facts and circumstances of the case and in law, the Ld CIT(A) has failed to discuss the merits of the case wherein the assessee has brought its unaccounted income into its books of account.”

3.

The facts show that, assessee is a company showing its business of software development filed its original return of income for A.Y. 2008-09 on 18.09.2008 at ₹ Nil. Subsequently, search under section 132 of the Act took place in Thakkar and Ashar group on 05.07.2017.

4.

At the time of search survey was also carried out at the office of the assessee and no such company was found to be existing. Somebody else was found residing at that place. On perusal of the financials, it was found that assessee has received a share premium of ₹ 05,53,59,100/- during the assessment year. One of the Director Shri. Kirit Nagda in his statement on oath admitted that the share valuation was not genuine. When another Director Mr. D.A. Thakkar was confronted with the above statement, he expressed ignorance. Based on this, the AO issued show cause notice that why the share premium of ₹5.50Crores should not be added as unexplained cash credit.

5.

Assessee in reply submitted that presently though there is no business activity conducted by the assessee. Further, during the year only ₹02,26,71,075/- is received and cumulative balance as on 31.03.2018 is ₹ 05,50,53,100/-. Assessee submitted name, address, PAN, cheque details of the share application receipt was shown. Assessee also stated that, statement of Mr. Kirit Nagda is in incorrect as he is only an Independent Director and does not know the day to day affairs of the company. It was stated that, Shri. D.A. Thakkar was not at all a director. It was also stated that Shri. Kirit Nagda has acted fraudulently, and his statement cannot be relied upon. The assessee referred to

6.

The learned AO rejected the submission of the assessee and held that the company does not have any substance as well as the investors namely 15 companies are also bogus and therefore, he made an addition of ₹05,50,53,100/- by assessment order u/s 143(3) r.w.s. 143C of the Act on 31.12.2019.

7.

Assessee aggrieved with the assessment order preferred an appeal before CIT(A), 49, Mumbai who held that the addition is made in the hands of the assessee only on the basis of statement of Shri. Kirit Nagda and Mr. D.A. Thakkar. He held that as on the date of search impugned A.Y. was concluded assessment which could have been disturbed only based on the incriminating material found during search. As the statement cannot be considered as incriminating material, the addition made by the Ld. AO is without any incriminating material, hence, the addition was deleted. Several judicial precedence was relied upon. Accordingly, by the appellate order dated 28.04.2022 the addition was deleted.

8.

On identical facts and circumstances for A.Y. 2010-11 return of income filed on 17.09.2010 at ₹Nil was assessed u/s 153C by assessment order dated 31.12.2019 making the addition of ₹2,76,00,000/- with respect to the 4

9.

Similarly, for assessment year 2013-14, basis on our return of income filed on 23.09.2013 at ₹01,64,79,070/- was assessed at ₹43,45,931/- wherein the addition of ₹ 02,08,25,001/- was made with respect to loan received from 3 entities during the year which were deleted on appeal before the learned CIT(A) by order dated 28.04.2022 in absence of incriminating material.

10.

Therefore, for this reason for all these years, the learned AO is in appeal. The Departmental Representative supported the order of the Ld. AO and submitted that statement of Mr. Kirit Nagda is an incriminating material and therefore, the Ld. CIT(A) is not correct in deleting the addition.

11.

The learned authorized representative vehemently supported the order of the Ld. CIT(A).

12.

We have carefully considered the rival contentions and pursued the order of the lower authorities. All three above assessment orders were concluded assessment at the time of search. Therefore, these assessments can only be disturbed only if incriminating material is found during the search. In this case, admittedly there is no material with respect to the additionmade were found during search . The only reason for making the addition is statement of one Shri. Kirit Nagda who accepted that the loans and

13.

Accordingly, the order of the learned CIT(A) in all these three appeals are confirmed.

14.

All three appeals of the learned AO are dismissed.

Order pronounced in the open court on 21.11.2022.

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