2019 (5) TMI 1893 - AT - Income Tax

Assessment u/s 153A - Addition u/s. 68 - Loose papers found and seized during the course of search - assessments abated on the date of search or not? - proof of incriminating material found in search - HELD THAT - We note that there are some loose papers found and seized during the course of search but none of them were incriminating in nature relating to the issue of share capital. Even in the order framed under section 153A read with section 143(3) there is no whisper about the material found during the course of search or any reference thereto while making the addition. In this case we observe that the assessment proceedings were already completed vide order dated 18.03.2013 passed under section 143(3) and the assessment has not abated on the date of search and any addition could only be made on the basis of incriminating material found during the course of search. As the statement of Shri Rajesh Daftary recorded during the course of survey is not and can not be treated as incriminating material qua the investment in shares of the assessee company by M/s. GSD Trading and Financial Services Pvt. Ltd. In the statement of Mr Rajesh Daftary there is nothing contrary to the evidences produced by the assessee during the original assessment proceedings or during proceedings u/s 153A We are therefore not in agreement with the conclusion drawn by Ld. CIT(A) that the statement of Shri Rajesh Daftary is an incriminating material and accordingly the order of Ld. CIT(A) is set aside on this issue and AO is directed to delete the addition. The legal issue raised in ground no 1 to 5 by the assessee is allowed. Addition u/s 68 - creditworthiness and genuineness of the parties from whom share application money was received were not proved - assessee has submitted all the proof documents and evidences in respect of said investment in the original assessment proceedings as well as the proceedings under section 153A of the Act in the form of share application bank statement audited financial statement and memorandum and article of association ITRs name of the bank from where the payments were made. The said investments were duly reflected in the books of GSD Trading and Financial Services Pvt. And were also shown in the schedule of investments forming part of the Balance Sheet as on 31.3.2010. Ltd The AO also verified the said transactions by issuing notice under section 133(6) of the Act to the said party which was replied by the investor confirming the investment and by filing all the necessary details and thus the AO accepted the genuineness and creditworthiness of the transactions in the original assessment proceedings. We find merit in the submissions of the Ld. A.R. that amendment in section 68 covering the share capital is applicable from A.Y. 2013-14 and is not applicable to the year under consideration - assessee has satisfied three tests of capacity identity and genuineness of the investor and has a very strong case and no addition is called for. - Decided in favour of assessee.

Summary

Issues Involved:
1. Jurisdiction of the AO to make additions under section 153A in the absence of incriminating material.
2. Validity of additions made under section 68 of the Income Tax Act, 1961.
3. Credibility and evidentiary value of the statement recorded during the survey under section 133A.
4. Genuineness and creditworthiness of the share capital and share premium received by the assessee.

Issue-wise Detailed Analysis:

1. Jurisdiction of the AO to Make Additions Under Section 153A in the Absence of Incriminating Material:
The Tribunal emphasized that for assessments that have attained finality, any addition under section 153A can only be made based on incriminating material found during the search. The Tribunal cited various judicial precedents, including the Hon’ble Bombay High Court's decision in CIT vs. Continental Warehousing Corporation Ltd., which held that in the case of completed assessments, no addition can be made without incriminating material found during the search. The Tribunal agreed with the CIT(A)'s decision to delete the addition of Rs. 22.32 crores as no incriminating material was found during the search regarding the share capital/share premium raised by the assessee.

2. Validity of Additions Made Under Section 68 of the Income Tax Act, 1961:
The Tribunal scrutinized the AO's addition of Rs. 30.23 crores under section 68, which was partly upheld by the CIT(A) for Rs. 7.91 crores based on the statement of Shri Rajesh Daftary. The Tribunal noted that the assessee had provided all necessary documents, including share application forms, bank statements, ITRs, confirmations, and financial statements during the original assessment proceedings. The AO had accepted these details after verification. The Tribunal found that the AO did not issue any fresh notices or conduct further inquiries during the 153A proceedings to challenge the genuineness of the share capital/share premium.

3. Credibility and Evidentiary Value of the Statement Recorded During the Survey Under Section 133A:
The Tribunal examined the statement of Shri Rajesh Daftary recorded during the survey and found that it did not contain any admission of providing accommodation entries or any incriminating evidence against the assessee. The Tribunal highlighted that Shri Rajesh Daftary became a director of M/s. GSD Trading and Financial Services Pvt. Ltd. after the investment was made in the assessee company. Therefore, his statement had no evidentiary value regarding the investment made by M/s. GSD Trading and Financial Services Pvt. Ltd. The Tribunal concluded that the statement could not be treated as incriminating material.

4. Genuineness and Creditworthiness of the Share Capital and Share Premium Received by the Assessee:
The Tribunal noted that the assessee had provided comprehensive documentation to prove the identity, genuineness, and creditworthiness of the investors. The AO had verified these details during the original assessment proceedings and accepted the share capital/share premium as genuine. The Tribunal observed that the subsequent buyback of shares at a lower price could not be a ground to question the genuineness of the original investment. The Tribunal referred to several judicial decisions supporting the assessee's case and concluded that the assessee had satisfactorily discharged its burden under section 68.

Conclusion:
The Tribunal allowed the assessee's appeal, directing the AO to delete the addition of Rs. 7.91 crores, and dismissed the Revenue's appeal, upholding the CIT(A)'s deletion of Rs. 22.32 crores. The Tribunal emphasized that no addition could be made under section 153A in the absence of incriminating material for completed assessments and that the assessee had adequately proven the genuineness and creditworthiness of the share capital/share premium received.