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2023 (3) TMI 86 - AT - Income TaxAssessment u/s 153A - unexplained cash deposits u/s 68 - AO’s observation that some of the CD-Drives containing KYC documents were not working - second search action conducted u/s 132 - whether the unabated assessment could have been disturbed by the AO in absence of incriminating material seized in the course of search so as to make additions u/s 68? - HELD THAT:- We find merit in the submissions of assessee that these twelve (12) statements of the account-holders did not contain anything which incriminated the assessee society or which would suggest that the cash deposited with the assessee society by these account holders represented its own unaccounted monies. Even if these statements are considered at their face value, it is noted that some individuals were taking advantage of the absence of reporting compliances on the assessee society to route their own unaccounted monies and even the ultimate beneficiaries had been named by these account-holders and identified by the authorities as well. On these facts, we find merit in the assessee society’s contention that these twelve (12) statements did not contain any incriminating material which could be used to disturb the finality of these unabated AYs and justify the additions made by the AO u/s 68 Improper KYC documentation - AO had prima facie stated that KYC compliance was done by the assessee at the time of opening the accounts in these two AYs. In our considered view therefore, in the facts and circumstances discussed instances of improper KYC documentation if any noted in second search cannot constitute incriminating material found in the course of first search so as to make additions in the impugned unabated AYs. Report of Ld. DDIT(I&CI) - Only if the Revenue demonstrates that some material or document or evidence was unearthed in the course of search or that some incriminating statement was obtained in the course of search, which supported the findings of this verification report, only then such verification report could have been used to disturb the finality of the unabated assessments. The Revenue, however, has been unable to do so in the present case. In our considered view therefore, this verification report on its own cannot be said to be incriminating material unearthed in the course of search. As showed during the relevant FY 2009-10 there were no RTGS made by any of the members of the assessee society and therefore this report was of no relevance in the relevant AY. Hence, we find merit in the Ld. AR’s contention that the Ld. CIT(A)’s reliance on this report to justify the impugned additions in the unabated AYs 2010-11 & 2011-12 was factually misplaced. The contents of the report shows that the Ld. DDIT(I&CI) had observed that these account holders were depositing large sums of cash on different dates in the accounts held by them with the assessee society, which was in turn being routed to different firms by way of RTGS who were the ultimate beneficiaries of these deposits and had failed to disclose the same in their respective tax returns. DDIT(I&CI) observed that by taking advantage of the absence of reporting liabilities, these societies were being used as a conduit for money laundering. One of the ten persons viz., Mr. R.A. Shah from whom enquiries were made had admitted that he had not disclosed his account in his tax return and accordingly revised his return of income and paid taxes thereon. On these facts, we are unable to countenance the action of Ld. CIT(A) seeking to justify the additions by way of unexplained monies being made u/s 68 of the Act in the hands of the assessee society, based on this spot verification report which does not incriminate the assessee qua the cash deposits made by these depositors qua these relevant AYs in these appeals. To substantiate the bonafides of the assessee society, the Ld. AR showed that the assessee had suo moto written several petitions to the Financial Intelligence Unit (FIU-IND) much prior to the date of search on 09.02.2016 viz., between July 2014 to June 2016 wherein they had time and again requested them to register them with FIU-IND so that they could share the details & information of their members with the concerned Department. He showed us that, it was only vide Circular dated 08-01-2018 that the multi-state cooperative societies were brought within the purview of PMLA Act, 2002 and all multi-state cooperative societies were required to register themselves with the Department. Before us, the Revenue was unable to bring any material on record to controvert the aforesaid submissions of the assessee society. On the overall conspectus of the facts, we thus hold that the reasoning given by the Ld. CIT(A) viz., existence of incriminating material & statements against the assessee society, to justify the validity of the additions made in the unabated assessments framed u/s 153A/143(3) of the Act for AY 2010-11 was untenable both on facts and in law. Disallowance of interest & administrative expenses u/s 69C - As per CIT-A there was no incriminating material found in the course of search which suggested that these expenses were unaccounted for - HELD THAT:- CIT(A) has rightly observed that these expenses were recorded in the regular books of the assessee and therefore invocation of Section 69C - there was no incriminating material qua the assessee which would justify the additions made by the AO in the unabated AY 2010-11. AO is accordingly directed to delete the same. Therefore, the ground of appeal of the assessee stands allowed.
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