2020 (2) TMI 786 - AT - Income Tax

Assessment u/s 153A - proof of incriminating material found in search - addition u/s 68 - A.O. on the basis of statement of accommodation entry provider - HELD THAT - As no incriminating material was found during the course of search we are of the view that the facts of the present case are identical to the facts involved in the case of Shri Brij Bhushan Singal Others 2018 (10) TMI 1635 - ITAT DELHI wherein the similar issue has been decided stating that CIT(A) enhanced the income in the absence of any incriminating material found during the course of search and considered a new source of income which was outside the subject matter of the assessment framed by the AO or the grounds agitated by the assessee in its appeal before the ld. CIT(A). Therefore the enhancement made u/s 153A r.w.s. 251 of the Act was not justified and accordingly the same is deleted. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of initiation of proceedings under section 153A of the Income Tax Act.
2. Addition under section 68 of the Income Tax Act on account of sale proceeds of shares.
3. Addition under section 69C of the Income Tax Act on account of alleged commission expenses.
4. Violation of principles of natural justice by not providing an opportunity to cross-examine witnesses.

Issue-wise Detailed Analysis:

1. Validity of Initiation of Proceedings under Section 153A:
- The assessee argued that the assessment under section 153A of the Income Tax Act was invalid as no incriminating material was found during the search. The original assessments for the relevant years were completed, and no pending assessments existed at the time of the search.
- The Tribunal noted that the assessment under section 153A can only be made on the basis of incriminating material found during the search. The Tribunal observed that the search did not yield any incriminating material against the assessee, and the assessments for the relevant years were completed before the search.
- The Tribunal relied on the judgment of the Hon’ble Delhi High Court in the case of CIT vs. Kabul Chawla, which held that completed assessments can only be interfered with on the basis of incriminating material found during the search.
- The Tribunal concluded that the initiation of proceedings under section 153A was invalid as no incriminating material was found during the search.

2. Addition under Section 68 on Account of Sale Proceeds of Shares:
- The assessee argued that the addition under section 68 on account of sale proceeds of shares was unjustified as the transactions were genuine and supported by documentary evidence.
- The Tribunal noted that the assessee had provided all necessary documents to substantiate the genuineness of the transactions, including purchase and sale invoices, bank statements, broker notes, etc.
- The Tribunal observed that the Assessing Officer (AO) made the addition based on the statements of third parties recorded during the search, but the assessee was not given an opportunity to cross-examine those parties.
- The Tribunal relied on the judgment of the Hon’ble Supreme Court in the case of Andaman Timber Industries vs. CCE, which held that not allowing the assessee to cross-examine the witnesses whose statements were relied upon is a serious flaw and violates the principles of natural justice.
- The Tribunal concluded that the addition under section 68 was not justified as the assessee was not given an opportunity to cross-examine the witnesses, and the transactions were supported by documentary evidence.

3. Addition under Section 69C on Account of Alleged Commission Expenses:
- The assessee argued that the addition under section 69C on account of alleged commission expenses was based on presumptions and not supported by any evidence.
- The Tribunal noted that the AO made the addition based on the statements of third parties and certain documents found during the search, but the assessee was not given an opportunity to cross-examine those parties.
- The Tribunal observed that the AO did not provide any concrete evidence to prove that the assessee had incurred commission expenses for arranging the alleged entries.
- The Tribunal concluded that the addition under section 69C was not justified as it was based on presumptions and not supported by any concrete evidence.

4. Violation of Principles of Natural Justice:
- The assessee argued that the AO violated the principles of natural justice by not providing an opportunity to cross-examine the witnesses whose statements were relied upon.
- The Tribunal noted that the AO relied on the statements of third parties recorded during the search, but the assessee was not given an opportunity to cross-examine those parties.
- The Tribunal relied on the judgment of the Hon’ble Supreme Court in the case of Andaman Timber Industries vs. CCE, which held that not allowing the assessee to cross-examine the witnesses whose statements were relied upon is a serious flaw and violates the principles of natural justice.
- The Tribunal concluded that the AO violated the principles of natural justice by not providing an opportunity to cross-examine the witnesses, and the additions made on the basis of such statements were not justified.

Conclusion:
The Tribunal allowed the appeals of the assessee, holding that the initiation of proceedings under section 153A was invalid in the absence of incriminating material found during the search, the additions under sections 68 and 69C were not justified as they were based on presumptions and unsupported by concrete evidence, and the AO violated the principles of natural justice by not providing an opportunity to cross-examine the witnesses.