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Facts
A search and seizure operation was conducted, leading to a notice under section 153A. The assessee failed to file a return or respond to subsequent notices. The Assessing Officer (AO) treated Rs. 2 lakhs, comprising paid-up capital and unsecured loan, as unexplained and added it to the assessee's income under section 68.
Held
The Tribunal noted the assessee's non-compliance but also the AO's need to show incriminating material for additions in search cases. The matter was restored to the AO to allow the assessee one last opportunity to explain the additions, provided the AO also demonstrates incriminating material found during the search.
Key Issues
Whether additions under section 68 can be made in search assessments without incriminating material, despite assessee's non-compliance? Should the assessee be given a last opportunity to explain entries when no incriminating material was found?
Sections Cited
132, 153A, 142(1), 68, 144, 271(1)(b), 271(1)(c), 250
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, SMC BENCH, LUCKNOW
Before: SHRI. SUDHANSHU SRIVASTAVA
Assessment Year: 2012-13 Ashray Ventures Pvt. Ltd. v. The Assessing Officer Gole Market Central Circle – 1 Mahanagar, Lucknow Lucknow TAN/PAN:AAKCA3580E (Appellant) (Respondent) Appellant by: Shri Rakesh Garg, Advocate Respondent by: Shri Sanjeev Krishna Sharma, D.R. O R D E R
This appeal has been preferred by the Assessee against the order dated 20.03.2023, passed by the ld. Commissioner of Income Tax (Appeal), Lucknow – 3 (ld. CIT(A)) for Assessment Year 2012-13.
2.0 The brief facts of the case are that a Search and Seizure operation under section 132 of the Income-tax Act, 1961 (hereinafter called “the Act’) was carried out on the business/residential premises of assessee-company on 08.07.2016, wherein, warrant was issued in the name of assessee company, Ashray Ventures (P) Ltd. During the course of Search and Seizure operation, incriminating documents were allegedly found and seized. Notice under section 153A of the Act was issued to the assessee-company, requiring the assessee to file the return of income. However, no return of income was filed by the assessee in compliance to the notice under section 153A of the Act. Subsequently, notice under section 142(1) of the Act alongwith detailed questionnaire was issued to the assessee. However, neither anyone attended nor any submission was received by the Office of the AO in response to notice under section 142(1) of the Act. The AO, from the material available on record, found that the paid up capital and unsecured loan of Rs.1 lakh each has been shown by the assessee in the return of income filed on 11.01.2013. The AO held that in the absence of documentary evidence, identity, creditworthiness and genuineness of the amount of Rs.2 lakhs could not be established and, therefore, he treated the same as unexplained unsecured loan and added back the same to the income of the assessee under section 68 of the Act. The AO completed the assessment under section 153A read with section 144 of the Act, assessing the total income of the assessee at Rs.2 lakhs.
2.1 The AO also initiated penalty proceedings under sections 271(1)(b) and 271(1)(c) of the Act, separately.
2.2 Aggrieved, the assessee preferred an appeal before the Ld. First Appellate Authority, who dismissed the appeal of the assessee by passing an order ex-parte qua the assessee.
2.3 Now, the assessee has approached this Tribunal challenging the impugned order of the Ld. First Appellate Authority by raising the following grounds of appeal:
1. Because the CIT(A) has erred on fact and in law in upholding the disallowance of Rs.200000/- on account of paid up capital / unsecured loan invoking the provisions of section 68 of the Act, which addition is contrary to facts, bad in law and be deleted.
Because the CIT(A) has erred on facts and in law and failed to appreciate that no doubt the company has paid up capital amounting to Rs.100000/- and received unsecured loan amounting to Rs.100000/-, the same be allowed.
Because the CIT(A) has failed to appreciate the company is private limited company and has paid up capital of Rs 100000/- which has duly contributed by the respective shareholders through their bank accounts and the unsecured loan also received through bank accounts the disallowance/addition made be deleted.
3.0 The Ld. Authorized Representative for the assessee (Ld. A.R.) submitted that the assessee-company was incorporated on 29.02.2012 and the assessment year under consideration is 2012-13 and, thus, the captioned assessment year was the first year of the Company coming to existence and the period also was of one month only, i.e. from 29.02.2012 to 31.03.2012. It was submitted that during the year under consideration, no business had been carried on by the Company and share capital of Rs.1 lakh as well as loan of Rs.1 lakh, both were identifiable. It was submitted that the assessment was completed under section 153A read with section 144 of the Act. However, no incriminating material had been found at the time of search and, therefore, the provisions of section 153A of the Act would not be attracted in the case of the assessee. It was emphasized that since no incriminating material was either found or seized, the amount of addition of Rs.2 lakhs has not been made on the basis of seized documents, whereas, as per the settled law, addition could only be made, in case of search, based on incriminating material found at the time of search. The Ld. A.R. placed reliance on the judgment of the Hon'ble Jurisdictional High Court in the case of CIT vs. Jaiswal Motor Finance Co. reported in 141 ITR 706 (Alld.) and also on the judgment of the Hon'ble Apex Court in the case of PCIT vs. Abhisar Buildwell Pvt. Ltd. reported in [2023] 454 ITR 212 (SC).
3.1 The Ld. A.R. further submitted that the reason for non- compliance before the AO as well as the Ld. First Appellate Authority was due to non-receipt of notices under section 153A and 142(1) of the Act issued by the office of AO and notice under section 250 of the Act issued by the office of the Ld. First Appellate Authority.
3.2 The Ld. A.R. prayed that in view of the settled legal position that in the absence of any incriminating material, no addition can be made in search assessments, the impugned additions deserved to be deleted.
4.0 Per contra, the Ld. Sr. D.R. submitted that it is to be noted that both, the assessment order as well as the order of the Ld. First Appellate Authority have been passed without any response from the side of the assessee and, therefore, since the impugned additions could not be verified at any stage, i.e., neither at the stage of assessment, nor at the stage of first appellate proceedings, the assessee did not have a case on the legal ground. The Ld. Sr. D.R. submitted that, at the best, the assessee should be directed to submit relevant documents for the purpose of verification before the AO. He prayed that the appeal of the assessee be dismissed.
5.0 I have heard both the parties and have also perused the material on record. It is true that the assessee did not comply either before the AO or before the Ld. First Appellate Authority. The AO issued initial notice under section 153A of the Act on 15.01.2017, requiring the assessee to file return of income within 15 days of service of notice. However, there was no response from the assessee. Subsequently, notice under section 142(1) of the Act along with detailed questionnaire was issued on 11.10.2018, requiring compliance by 22.10.2018. However, there was again no compliance from the side of the assessee. Thereafter, from the available material on record, the AO found out that share capital of the assessee-company was Rs.1 lakh and further there was an unsecured loan of Rs.1 lakh. This data was extracted from the return of income filed by the assessee on 11.01.2013. The AO further noted that despite providing numerous opportunities, neither the assessee attended nor any submission was produced before the AO and, therefore, in the absence of documentary evidence, the identity, creditworthiness and genuineness of the amount of Rs.2 lakhs shown on the credit side of the balance sheet could not be established and the AO proceeded to treat the same as unexplained and added the same to the income of the assessee under section 68 of the Act.
5.1 Similar was the conduct of the assessee during the proceedings before the Ld. First Appellate Authority. The impugned order shows that three notices were issued to the assessee, viz. on 14.01.2021, 23.11.2021 and 09.03.2023, but all of them went un-responded.
5.2 The contention of the assessee for non-compliance, as stated by the Ld. A.R., was non-receipt of notices under section 153A and 142(1) of the Act and also 250 of the Act due to Company changing hands and the earlier email address being of the earlier Tax Auditor.
5.3 The conduct of the assessee in not responding to various notices has although been explained as being due to change in ownership of the Company, and the assessee has placed reliance was on the judgment of Hon'ble Apex Court in the case of PCIT vs. Abhisar Buildwell Pvt. Ltd. (supra) and also on the jurisdictional High Court in the case of CIT vs. Jaiswal Motor finance Co. (supra). However, the fact does remain that there was complete non-compliance during the course of assessment proceedings as well as during the course of first appellate proceedings and, therefore, the assessee cannot seek shelter behind the judgment of the Hon'ble Apex Court without any iota of compliance on its part. Further, in such a situation, the AO also has to demonstrate with evidence that there was some incriminating material found and seized with respect to the assessee during the course of search. Therefore, on an overall view of the matter and keeping in mind the principle that both the parties should have substantial justice, I deem it appropriate to restore this file to the office of the AO to provide one last opportunity to the assessee to explain the impugned additions. However, the AO will also have to bring on record any incriminating material found during the course of search before making the addition. The verification/enquiry by the AO shall only be limited to the verification of the two entries pertaining to share capital and unsecured loan and nothing beyond that. The assessee is also directed to fully comply with the directions of the AO, requiring submission of evidence and documents for verification of the two entries pertaining to share capital and unsecured loan, whenever called for to do so, failing which the AO shall be at complete liberty to even pass ex-parte assessment order qua the assessee based on the material available on record as well as the settled dictum of law and very well keeping in mind the judgment of the Hon'ble Apex Court in PCIT vs. Abhisar Buildwell Pvt. Ltd. (supra).
6.0 In the final result, the appeal of the assessee stands allowed for statistical purposes.
Order pronounced in the open Court on 04/07/2025.