2023 (6) TMI 1490 - AT - Income Tax

Validity of Assessment u/s 153A - Scope of 4th proviso to Section 153A for assessment years beyond six years - bogus unsecured loan u/s 68 - Whether incriminating material relevant to the alleged unsecured loans as well as the share capital and share premium were found? - Whether the ld. AO was well within his jurisdiction to issue notice u/s 153A by resorting to the 4th proviso to Section 153A? - HELD THAT - We observe that the basis for showing notice u/s 153A of the Act for Assessment Year 2008-09 to 2010-11 as the case may be for the assessee(s) in appeal before us the reason adopted by the AO was the statements of alleged entry operators running group of companies which were engaged in providing accommodation entries to the company in the case of the assessees and other group concerns. Some of the alleged accommodation entry provider companies have given loans to the assessee group companies or have invested in to the equity share capital of the group companies including payment of premium. AO has observed that for Assessment Year 2012-13 to Assessment Year 2017-18 assessee has suo-moto offered such sum received through alleged entry operators to tax in the application filed for ITSC u/s 254C(1) of the Act. For Assessment Year 2011-12 the case of the assessee was reopened by issuing notice u/s 148 of the Act but for Assessment Year 2008-09 to 2010-11 the ld. Assessing Officer resorted to invoke the 4th proviso to Section 153A of the Act. Whether AO had in his possession books of accounts or other documents or evidence which revealed that income represented in the form of asset has escaped assessment which amounts to or likely to amount Rs. 50, 00, 000/- or more in the relevant AY or in aggregate in the relevant Assessment Years? - AO has not referred to any of such asset neither any information in their in the assessment order about any immovable property being land or building or both shares and securities loans and advance deposits in bank account in the assessment order. The assets referred in the 4th proviso are the assets which are appearing on the right side of the balance sheet whereas the AO is referring to unsecured loan and shares capital and share premium which is on the liability side of the balance sheet. In other words the 4th proviso to Section 153A of the Act talks about the assets whereas the AO has invoked the 4th proviso by referring to liabilities which is completely inverse of what is provided under the Act. Now once the basic condition i.e. availability of asset as defined under explanation 2 to 4th proviso to Section 153A of the Act if any found during the course of search with the assessee/group concern is absent nor there is any reference to any incriminating material referring to ownership of such undisclosed assets by assessee and only there is a reference of the credits received by the assessee/s which are duly disclosed in the regular books of accounts are part of the audited financial statements issuing of notice u/s 153A of the Act then invoking the 4th proviso to Section 153A of the Act is invalid and bad in law and beyond jurisdiction and thus on this ground itself the assessment order passed u/s 153A of the Act which is the subject matter of the instant appeals before us has rightly been quashed by the ld. CIT (A) and which thus does not call for any interference. Whether a Settlement Application be considered as an incriminating document or not? - Once the application has been accepted the information contained therein cannot be used against the assessee for other Assessment Years unless and until other conditions provided under the Act are fulfilled which brings us again to the same point i.e. validity of initiating proceedings under the 4th Proviso to Section 153A of the Act and as discussed above since the conditions for invoking the provisions of 4th proviso u/s 153A of the Act are not be fulfilled by the AO in any of the cases before us as merely taking information from ITSC application and based on such details about the share applicants and loan providers the action of the AO to assess the assessee under the 4th proviso to Section 153A of the Act is uncalled for and unjustified. We therefore are of the considered view that the application made before the Settlement Commission cannot be used by the Assessing Officer as an incriminating material since it is not found during the course of search and it is a mere application which the assessee filed before the ITSC after the conclusion of search. Therefore we find no infirmity in the finding of the ld. CIT (A) that the application made before the Settlement Commission cannot be held as an incriminating material. Thus on this legal ground also the assessee succeeded before the ld. CIT (A) and the ld. CIT (A) has rightly allowed this ground raised by the assessee which do not call for any interference. Addition u/s 68 - difference between opening and closing balance of share capital and share premium and unsecured loans as bogus - CIT(A) deleted addition - No efforts have been made by the AO to gather any information about the alleged receipts. Had there been any incriminating material based on which such additions have been made then the Assessing Officer certainly would have referred to the same. However this finding of the ld. Assessing Officer of making the addition only on the basis of difference in closing and opening balance of the share capital and share premium and unsecured loans in itself proves that these additions have not been made on the basis of any incriminating material but only on the basis of the audited financial statements available with the AO and which were duly submitted before the lower authorities at the time of filing the regular return of income. Therefore the impugned addition was uncalled for and has been rightly deleted by the ld. CIT(A). Whether additions can be made for completed assessments in absence of any incriminating documents ? - In case no incriminating material is unearthed during the search the AO cannot assess or reassess taking into consideration the other material in respect of completed assessments/unabated assessments. Meaning thereby in respect of completed/unabated assessments no addition can be made by the AO in absence of any incriminating material found during the course of search under Section 132 or requisition under Section 132A of the Act 1961. However the completed/unabated assessments can be re-opened by the AO in exercise of powers under Sections 147/148 of the Act subject to fulfilment of the conditions as envisaged/mentioned under sections 147/148 of the Act and those powers are saved. Whether the action of AO obtaining the information that share capital from same names were raised in earlier years also (this information has been obtained from the MCA website and the returns of income filed by the assessee) as the basis for making the addition justified or not? - CIT (A) has rightly held that the information obtained from the Ministry of Corporate Affairs website and the annual returns filed by the assessee cannot be construed as incriminating material because the same are available on the portal open for public and the informations appearing therein are filed by the assessee only. Therefore the same cannot constitute the incriminating material. Action of AO relying on alleged statements of the entry operators and the key persons of the group for making the additions - Statements have been recorded in January 2018 and the transactions which the Assessing Officer is referring to are during Assessment Year 2008-09 to 2010-11 and there is no information on record whether the person who have given statements in January 2018 were having any connection with the alleged share applicants or cash creditors or whether the affairs were controlled and managed by them at that point of time. Therefore we are of the considered view that since there is no direct nexus of the alleged additions with the statements given by the entry operators or with any other transactions entered into by the assessee in respect of the alleged transactions of receiving unsecured loans and share capital and share premium money ld. Assessing Officer grossly erred in making the addition based on alleged statements of the third parties i.e. the entry operators and the key persons of the group. Reference to the alleged statement of the key person Mr. Ramnath Jhunjhunwala made by AO while making the addition - AO extrapolated the statement of the key person Mr. Ramnath Jhunjhunwala for the AY 2008-09 to 2010-11 which was beyond his jurisdiction since the addition for AY 2008-09 to 2010-11 could have been only on validly invoking the 4th proviso to Section 153A of the Act which the ld. AO failed to do so as discussed by us in the preceding para wherein we have confirmed the finding of the ld. CIT (A) quashing the subject matter of the instant appeal i.e. the order u/s 153A of the Act. Therefore on this issue also AO has erred in making the addition merely on the basis of the statement of the key person without fulfilling the relevant provisions of the Act which was sine-qua-non for initiating the proceedings u/s 153A of the Act for the year under appeal. Thus CIT (A) has rightly deleted the addition u/s 68 - Assessee appeal allowed.

Summary

ISSUES:

Whether the Assessing Officer was within jurisdiction to issue notice under Section 153A of the Income-tax Act, 1961 by invoking the 4th proviso to Section 153A for assessment years beyond six years but not exceeding ten years from the year of search.Whether additions under Section 68 of the Act on account of unexplained share application money and bogus unsecured loans can be sustained in completed assessments in absence of any incriminating material found during search.Whether a settlement application filed before the Income Tax Settlement Commission (ITSC) can be treated as incriminating material found during search for the purposes of invoking Section 153A.Whether information obtained from public sources such as Ministry of Corporate Affairs (MCA) website and returns of income filed by the assessee can be considered incriminating material found during search.Whether statements of alleged entry operators and key persons of the group can constitute incriminating material to justify additions under Section 68 of the Act.Whether additions based solely on difference between opening and closing balances of share capital, share premium, and unsecured loans without identification of specific entries or parties are valid.

RULINGS / HOLDINGS:

On jurisdiction under Section 153A: The Assessing Officer erred in issuing notice under Section 153A by invoking the 4th proviso without possession of any books of account, documents, or evidence revealing undisclosed income represented in the form of assets amounting to Rs. 50 lakh or more for the relevant assessment years; thus, the invocation of the 4th proviso to Section 153A was invalid and beyond jurisdiction.On additions under Section 68 in completed assessments: Additions made under Section 68 for unexplained share application money and bogus unsecured loans in completed assessments without any incriminating material found during search are not sustainable; the Assessing Officer cannot make additions in completed assessments sans incriminating material.On settlement application as incriminating material: The settlement application filed before the ITSC is a confidential document and cannot be used as incriminating material found during search; hence, it cannot justify issuance of notice or additions under Section 153A.On information from MCA website and returns: Information obtained from MCA website and returns of income filed by the assessee are public domain documents and cannot be treated as incriminating material found during search; reliance on such information for additions is improper.On statements of entry operators and key persons: Statements of alleged entry operators and key persons, without specifics linking them to the relevant assessment years or transactions, and without opportunity for cross-examination, do not constitute incriminating material to justify additions under Section 68.On additions based on balance differences: Additions based solely on the difference between opening and closing balances of share capital, share premium, and unsecured loans without identifying specific entries, parties, or establishing their bogus nature are unlawful and lack application of mind.

RATIONALE:

The legal framework centers on Section 153A of the Income-tax Act, 1961, particularly the 4th proviso inserted by the Finance Act, 2017, which permits reopening of assessments beyond six years up to ten years only if the Assessing Officer has incriminating material revealing undisclosed income represented in the form of assets valued at Rs. 50 lakh or more.Judicial precedents, including decisions by various High Courts and the Supreme Court, establish that in completed assessments, additions can be made under Section 153A only if incriminating material is found during the search; absent such material, the Assessing Officer lacks jurisdiction to make additions.The principle that a search assessment must be evidence-based and not arbitrary was emphasized, with reliance on cases such as Kabul Chawla and Meeta Gutgutia, affirming that completed assessments cannot be disturbed without incriminating material.The confidential nature of settlement applications under Section 245C(1) and statutory protections under Section 245HA(3) preclude their use as incriminating material in separate proceedings.Information in the public domain, such as MCA filings and income tax returns, cannot be considered material "found during search" and thus cannot form the basis for reopening or additions.Statements of third parties without corroborative evidence and without providing the assessee an opportunity for cross-examination are insufficient to constitute incriminating material, following principles laid down in landmark judgments including ACIT vs. Lata Mangeshkar and C. Shukla.The Assessing Officer's failure to identify specific bogus entries or parties and reliance on mere balance sheet differences demonstrates lack of proper inquiry and application of mind, rendering additions invalid.The Tribunal confirmed the findings of the Commissioner of Income Tax (Appeals) that the Assessing Officer's actions were without jurisdiction and the additions were rightly deleted, dismissing the revenue's appeals.