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Facts
A search and seizure operation was conducted, leading to additions by the AO based on share allotment and advances. The CIT(A) confirmed part of the addition related to a difference in share allotment and an enhancement of advances, while deleting a larger portion. The assessee is in appeal against the CIT(A)'s order.
Held
The Tribunal held that since the assessment year was unabated, additions not based on incriminating material found during the search are not sustainable. Relying on the Supreme Court's decision in PCIT vs. Abhisar Buildwell (P) Ltd., the Tribunal deleted the additions made by the AO.
Key Issues
Whether additions made by the AO during an unabated assessment year, in the absence of any incriminating material found during a search, are sustainable.
Sections Cited
132, 68, 115BBE, 153C, 153A
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Income Tax Appellate Tribunal, ‘A’ BENCH, CHENNAI
Before: SHRI ABY T VARKEY, HON’BLE & SHRI S. R. RAGHUNATHA, HON’BLE
आदेश /O R D E R
PER S. R. RAGHUNATHA, AM:
This appeal by the assessee is filed against the order of the Commissioner of Income Tax (Appeals), Chennai-18, dated 20.03.2025 for the assessment year 2018-19.
:-2-: ITA. No: 1544/Chny/2025 2. Brief facts of the case are as follows:-
A Search and Seizure operation under section 132 of the Income Tax Act, 1961 (in short ‘the Act’) was carried out at residential/business premises in the cases of M/s.Golden Shelters Private Ltd, NKV Krishna Group on 16.10.2019. During the course of search, statements of Mr. NKV Krishna and Mr.Saravana Kumar was recorded on 19.10.2019 and 24.10.2019 based on which Annexure I, II, and III were compiled on the basis of pen drive found and seized vide ANN/KP/BNC/ED/S1- (3) on 17.10.2019 from the residence of Shri Badri Narayan Kota, wherein details of introducing unaccounted cash into share application and unsecured loan / land advance in the group companies as [Copies of these annexures are enclosed at page 1 to 16 of paper book dated 04.09.2025 filed by assessee on 08.09.2025].
The AO during the course of assessment, verified the books of the assessee company and added an amount of Rs.83,49,000/- u/s.68 r.w.s. 115BBE of the Act on account of preferential share allotment received during the year. Accordingly, addition was made by the AO by passing an order u/s.153C of the Act dated 28.09.2021
:-3-: ITA. No: 1544/Chny/2025 4. Before the AO, the assessee had contested the jurisdictional validity of notice issued u/s.153A of the Act on the grounds that the assessment year under consideration is a non-abated assessment year and no incriminating documents were found during the course of search proceedings in regard to the addition involved. However, the AO did not accept the contentions of the assessee and assessment was completed making the above additions.
Being aggrieved by the assessment order, the assessee company preferred appeal before ld.CIT(A). The ld.CIT(A) confirmed the addition made by the AO by passing an order dated 20.03.2025. The ld.CIT(A) held that the pen drive found in the premises of Mr.Badri Narayan Kota would constitute incriminating material found during search. On merits of the case (as regards the cases relating to addition on allotment of preferential shares), it was contended before ld.CIT(A) that no fresh funds were received by the assessee for allotment of preferential shares during the year under consideration but only advances received in earlier years were converted to preference share capital. It was stated that since no fresh credit was received during the year, addition u/s.68 of the Act cannot be sustained.
:-4-: ITA. No: 1544/Chny/2025 6. On perusal of the financials of the company as on 31.03.2017 as well as 31.03.2018 along with the submissions of the assessee, the ld.CIT(A) deleted the additions of Rs.81,55,000/- and confirmed the addition of Rs.1,94,000/- holding as under :
“5.4.3. I have also perused the financials for the assessment year 2017-18, wherein an amount of Rs.81,55,000/- was shown towards land advances. There is no change in the fixed assets of the company. As such, there is no fresh flow of funds towards allotment of preferential shares except that they said land advance creditors were converted into preferential shareholders during the year. However, as could be seen from the above figures, the loan outstanding as on 31.03.2017 towards land advance is only Rs.81,55,000/- against the amount of preferential shares issued at Rs.83,49,000/-. Thus, there is a difference of Rs.1,94,000/- in the amounts and the appellant had not furnished any details of sources for the said differential amount. Therefore, the addition made by the AO to the extent of this differential amount of Rs.1,94,000/- is sustained and the balance amount of Rs.81,55,000/- is directed to be deleted.”
Further, the ld.CIT(A) based on the finding in the appeal filed by the assessee for A.Y.2019-20 before him, enhanced the addition by Rs.25,00,000/- u/s.68 of the Act, for increase in the advances as on 31.03.2018 by holding as under:
“6.5 The reply of the appellant is considered. Except bringing out that no funds were infused during the year under consideration, the appellant had not explained the discrepancy pointed out in the enhancement notice. The issue for consideration is that when asked to explain the Sources for the share capital increase by Rs.83,49,000/- for the assessment year 2018-19, the appellant had explained it as met out of land advance amount brought forward under current liabilities as on 31.03.2017. With this conversion of advances into share capital the current liabilities have come down to ₹32,350/- on 31.03.2018. Again, while explaining the sources for the investments made by the appellant in the assessment year 2019-20, the appellant had increased the outstanding the chances to Rs.25,32,350/- as on 31.03.2018. The reply of the appellant is totally silent on this increase in advances by Rs.25,00,000/-. Except stating that no fresh funds was introduced during the year and that there was an accounting error/presentation format, the appellant had not substantiated this increase of Rs.25,00,000/- with any cogent evidences. Therefore, the increase in advances of Rs.25,00,000/- is treated as unexplained credit under section 68, and the income of the appellant is increased by this amount for the subject assessment year 2018-19”.
:-5-: ITA. No: 1544/Chny/2025 8. Aggrieved by the order of the ld.CIT(A), assessee has preferred this appeal before the Tribunal. The assessee had raised a legal ground (Ground No.1) stating there was no incriminating material found during the course of search and in the relevant appeal, assessment has become unabated. Therefore, the additions/disallowances made not based on incriminating material is bad in law. The Ld.AR took us through the documents seized during the search conducted u/s.132 of the Act and contended that there is no incriminating material found. It was reiterated by the Ld.AR since assessments in these cases are unabated, the additions/disallowances made de hors incriminating documents should be deleted. In support of his submission, the Ld.AR relied on the judgment of Hon’ble Apex Court in the case of PCIT vs. Abhisar Buildwell (P.) Ltd., reported in [2023] 454 ITR 212 (SC).
The Ld.DR supported the orders of the AO and the CIT(A).
We have heard rival submissions and perused the material on record. The assessment year involved in the appeal is 2018-19. It is an admitted fact that for the above assessment year, the assessment is unabated.
:-6-: ITA. No: 1544/Chny/2025 11. There was a search u/s.132 of the Act in the residential / business premises of Golden Shelters Pvt. Ltd., NKV Krishna Group on 16.10.2019. The office premises of the above-mentioned assessee company was also covered in the search operation being the group concerns. During the course of search, a statement was recorded from Shri NKV Krishna and Shri Saravana Kumar on 19.10.2019 and 24.10.2019. Based on the statements, Annexure I, II and III were prepared on the basis of pen drive found and seized vide ANN/KP/BNC/ED/S1-(3) on 17.10.2019 from the residence of Shri Badri Narayan Kota, wherein the details of unaccounted cash introduced in the group companies as unsecured loans/share application money were calculated. Copies of these annexures are on record from pages 1 to 16 of the paper-book filed by the assessees. During the assessment proceedings, assessees had contested the jurisdictional validity of the notice issued u/s.153A of the Act by stating that for the assessment years under consideration, the assessments are unabated and no incriminating documents were found during the course of search. Accordingly, it was contended that the addition/disallowance not based on incriminating material cannot be made in assessment u/s.153A of the Act. The AO however did not accept the contention and rejected the objection of the assessees. The ld.CIT(A) confirmed the additions made by the AO by observing that :-7-: ITA. No: 1544/Chny/2025 pen drive found in the premises of Shri Badri Narayana Kota would constitute incriminating material found during the search.
On perusal of the search material, annexures I, II & III compiled by the search person based on the statements recorded and the seizure of pendrive, we find that for the relevant assessment year no incriminating document relating to assessee was found. The name of the assessees company is appearing in Annexure I at sl.No.16. However on perusal of the same, we find that for the assessment year 2018-19, no amount is mentioned.
The ld.CIT(A) has failed to appreciate the said pen drive did not contain any information whatsoever about the addition / disallowance made by the AO in the impugned assessment years. The Hon’ble Supreme Court in the case of PCIT vs. Abhisar Buildwell (P) Ltd., supra, had clearly held that in a case of unabated assessment, no addition can be made in the absence of any incriminating material found during the course of search. As mentioned earlier, the assessment years under consideration are unabated assessments and thus, the AO could not have made the addition in the absence of incriminating material found during the course of search.
:-8-: ITA. No: 1544/Chny/2025 14. On identical facts, the Chennai Bench of the Tribunal in another group company case, namely Reform Realty & Logistics Development Pvt. Ltd., vs. DCIT in (order dated 25.10.2024), had deleted the addition by observing as under:-
We have heard the rival submissions, and perused the materials available on record. The assessee-company as a part of group company of NKV Krishna group, where search was conducted on 16.10.2019 u/s 132 of I T Act. The A.O has made the addition of share capital of Rs. 5,00,000/- each introduced by Shri NKV Krishna and Smt. Preetha u/s. 68 of the Act. The Ld. CIT(A) has noted that the assessee has not been able to explain the source of cash deposit and the nature of cash recorded in the books of account and confirmed the addition. The Ld AR took us to the seized documents of Annexure-I, II, III and IV where details of introducing unaccounted cash into share application money and unsecured loan /loan and advance was listed and assessee company name does not figure in any of these documents. The AO has made the addition based on the general statement that unaccounted cash was introduced as share capital without referring to any specific documents. The documents produced by the Ld DR as incriminating material was the copy of cash book and ledger account of Shri NKV Krisha and Preetha ji, which are entries of regular books of account . We therefore hold that addition of share capital of Rs 10,00,000/ has not been made based on incriminating material found during search The AO in the assessment order u/s 153A has assessed income at Rs 9,40,000/- against returned loss of Rs 60,000 , thus making only addition of share capital of Rs 10,00,000 u/s 68 of the Act. Therefore, in view of Honorable Supreme Court decision in the case of Abhisar Buildwell (P) Ltd addition cannot be sustained in present case without there being incriminating material. We accordingly delete the addition of share capital of Rs.10,00,000 u/s 68 of Income Tax Act made by the AO .
In light of the aforesaid reasoning and relying on the judicial pronouncement cited supra, since addition made by the AO on account of preferential share allotment is not based on information / material
:-9-: ITA. No: 1544/Chny/2025 unearthed in search proceedings, the said addition is liable to be deleted. Accordingly, we delete the addition made by the AO.
Since we have decided the issue on the legal ground, the other grounds raised by the assessee on merits and other legal issues are not adjudicated and are left open. It is ordered accordingly.
In the result, the appeal filed by the assessee is partly-allowed.
Order pronounced in the open court on 23rd October, 2025 at Chennai.