2025 (7) TMI 170 - AT - Income Tax

Assessment u/s 153A - Addition u/s 68 - deposits/credits made in the bank account of the assessee unexplained - Incriminating material found during the search/requisition or not? - HELD THAT - AO made the addition in respect of the total credits of the amounts in the bank account of the assessee and no addition was made in the hand of the assessee based on any incriminating material found or seized during the course of requisition u/s 132A. The addition made by the AO while framing the assessment u/s 153A for the unabated A.Ys in the absence of any incriminating material are not sustainable in law as held in the case of Pr. CIT vs. Abhisar Buildwell (P) Ltd 2023 (4) TMI 1056 - SUPREME COURT Thus as per the 2nd proviso to section 153A of the Act only pending assessments or re-assessments shall stand abated and the Assessing Officer would assume the jurisdiction in respect of such abated assessment to assess the income based on the material available with the AO. In case no incriminating material is found during the course of search u/s 132 or requisition u/s 132A of the Act no addition can be made by the Assessing Officer in respect of the completed assessments/unabated assessments. Accordingly in view of the judgment of the Abhisar Buildwell (P) Ltd 2023 (4) TMI 1056 - SUPREME COURT the addition made by the Assessing Officer for the A.Ys 2017-18 and 2018-19 in the absence of any incriminating material are not sustainable in law and liable to be deleted. Addition u/s 68 - HELD THAT - It is pertinent to note that this Tribunal while remanding the matter 2023 (3) TMI 1580 - ITAT HYDERABAD has taken note of the fact that due to the assessee being in Jail/Judicial Custody he could not receive the notices issued by the learned CIT (A) and therefore the assessee was given further opportunity to appear before the learned CIT (A) and substantiate his case. AR has pointed out that the assessee is still in the judicial custody and therefore he could not avail the opportunity granted by this Tribunal to produce relevant evidence before the CIT (A). Thus it is clear that the assessee could not produce any explanation or the source of the deposits as well as credits in the bank account of the assessee due to the reason that he was in the judicial custody. The assessee has also taken a plea that there are substantial withdrawals from the bank account which can be considered as source of subsequent cash deposits in the bank account. All these facts are required to be verified and reexamined on the basis of the relevant record to be produced by the assessee.

Summary

The core legal questions considered by the Appellate Tribunal in these appeals pertain to the validity and sustainability of additions made by the Assessing Officer (AO) under sections 68 and 69A of the Income Tax Act, 1961, based on unexplained credits and cash deposits in the bank accounts of the assessee for the assessment years (AYs) 2017-18 to 2020-21. The principal issues include:

1. Whether the additions made under section 68 (unexplained credits) and section 69A (unexplained money) of the Income Tax Act are justified in the absence of incriminating material seized or found during search/requisition under section 132 or 132A of the Act.

2. Whether the assessments for AYs 2017-18 and 2018-19, which were not pending as on the date of requisition under section 132A, could be reopened or additions made under section 153A read with section 144 of the Act.

3. Whether the principles of natural justice were violated by the learned CIT(A) in refusing adjournments and proceeding with the appeals despite the assessee's inability to produce evidence due to judicial custody.

4. The correctness of the additions confirmed by the CIT(A) for AYs 2019-20 and 2020-21, which were abated assessments due to requisition under section 132A, and whether the matter requires remand for fresh adjudication considering the assessee's inability to produce evidence.

Issue-wise Detailed Analysis:

Issue 1: Validity of Additions under Sections 68 and 69A in Absence of Incriminating Material for AYs 2017-18 and 2018-19

Legal Framework and Precedents: The key statutory provisions involved are sections 68 (unexplained credits), 69A (unexplained money), 132A (requisition of documents/material), 153A (assessment following search/requisition), and 144 (best judgment assessment) of the Income Tax Act, 1961. The Supreme Court's ruling in Pr. CIT vs. Abhisar Buildwell (P) Ltd is pivotal, where it was held that for completed or unabated assessments, no addition can be made under section 153A in the absence of incriminating material found during search or requisition. The Court clarified that only pending assessments stand abated on requisition and the AO's jurisdiction under section 153A is limited to abated assessments or where incriminating material is found.

Court's Interpretation and Reasoning: The Tribunal noted that for AYs 2017-18 and 2018-19, the original returns were filed well before the requisition under section 132A dated 26/06/2020. The limitation period for issuing notices under section 143(2) had expired, and assessments were not pending on the date of requisition. The AO made additions solely on the basis of unexplained credits in the assessee's bank accounts, without any incriminating material seized or found during the requisition.

The Tribunal relied on the Supreme Court's conclusion that in such circumstances, additions under section 153A are not sustainable. The AO cannot reassess completed/unabated assessments without incriminating material, and the proper recourse, if any, is reopening under sections 147/148 subject to prescribed conditions.

Key Evidence and Findings: The AO's addition for AY 2017-18 was Rs. 81,72,880 and for AY 2018-19 was Rs. 64,66,059 under section 68, based on bank credits. The assessee failed to provide explanations or source documents despite repeated notices. However, no incriminating material was seized or found during the requisition, and the assessments were not pending at the time of requisition.

Application of Law to Facts: Applying the legal principle from Abhisar Buildwell, the Tribunal held that additions made under section 153A in these circumstances are not sustainable. The AO's jurisdiction to make additions under section 153A is limited to abated assessments or where incriminating material is found. Since neither condition was met, the additions are liable to be deleted.

Treatment of Competing Arguments: The Revenue argued that the requisition of cash by police and its handing over to the Department constituted incriminating material. The Tribunal rejected this, emphasizing that the additions were based solely on bank credits, not on seized material. The assessee's counsel relied on the Supreme Court judgment and the absence of pending assessments to support deletion.

Conclusion: The Tribunal deleted the additions for AYs 2017-18 and 2018-19, holding them unsustainable in law in absence of incriminating material and pending assessments.

Issue 2: Admission and Adjudication of Additional Grounds of Appeal for AYs 2017-18 and 2018-19

Legal Framework and Precedents: The Tribunal referred to the Supreme Court decision in NTPC Ltd vs. CIT, which allows legal grounds to be raised at any stage of proceedings. The additional grounds challenged the validity of additions made under section 153A read with section 144 for completed assessments not based on seized material.

Court's Interpretation and Reasoning: The Tribunal admitted the additional grounds as they were purely legal and did not require fresh investigation or fact-finding. The Tribunal held that adjudication on these grounds could be made based on existing record.

Key Evidence and Findings: The additional grounds were premised on the absence of incriminating material and the fact that assessments were completed/unabated on the date of requisition.

Application of Law to Facts: Applying the Supreme Court's rulings, the Tribunal admitted and adjudicated these grounds, leading to deletion of additions as discussed above.

Treatment of Competing Arguments: The Revenue opposed admission citing prior remand and non-compliance by the assessee. The Tribunal held that legal grounds can be taken at any stage and do not require fresh inquiry.

Conclusion: Additional grounds were admitted and formed basis for allowing the appeals for AYs 2017-18 and 2018-19.

Issue 3: Additions Confirmed for AYs 2019-20 and 2020-21 and Remand for Fresh Adjudication

Legal Framework and Precedents: For AYs 2019-20 and 2020-21, assessments stood abated due to requisition under section 132A, and AO assumed jurisdiction under section 153A to assess income based on seized and other material. The Tribunal considered the assessee's inability to produce evidence due to judicial custody and the principles of natural justice requiring opportunity to be heard.

Court's Interpretation and Reasoning: The Tribunal observed that the AO made additions based on cash deposits and credits in the assessee's bank account, mostly through RTGS/NEFT/cheques. The assessee contended that these represented business receipts already offered to tax and substantial withdrawals from the account explained subsequent deposits. However, due to judicial custody, the assessee could not produce evidence before the CIT(A) despite earlier remand and opportunity.

Key Evidence and Findings: Bank statements showed credits and cash deposits totaling Rs. 81,42,920 (AY 2019-20) and Rs. 23,19,152 (AY 2020-21). The assessee's inability to produce evidence was attributed to judicial custody. The Revenue produced bank statements and opposed remand.

Application of Law to Facts: In the interest of justice, the Tribunal set aside the matter for fresh adjudication by the AO, directing that the assessee be given opportunity to produce relevant evidence explaining the source of credits and cash deposits. The Tribunal recognized the need to verify the assessee's contention regarding withdrawals and business receipts.

Treatment of Competing Arguments: The Revenue opposed remand citing non-production of evidence despite prior opportunity. The Tribunal balanced this against the assessee's custodial status and the principle of fair hearing.

Conclusion: Appeals for AYs 2019-20 and 2020-21 were allowed for statistical purposes and remanded to the AO for fresh adjudication after affording opportunity to the assessee.

Issue 4: Alleged Violation of Principles of Natural Justice by CIT(A)

Legal Framework and Precedents: Principles of natural justice require that a party be given adequate opportunity to present its case and produce evidence. Adjournments may be granted for justifiable reasons such as inability to obtain documents or judicial custody.

Court's Interpretation and Reasoning: The Tribunal noted repeated requests for adjournments due to the assessee's judicial custody and difficulties faced by counsel in obtaining documents. Although the CIT(A) proceeded with the appeals, the Tribunal considered these factors in its decision to remit the matter for AYs 2019-20 and 2020-21 to ensure fair opportunity.

Key Evidence and Findings: Adjournment requests dated 08.01.2024, 13.02.2024, and 26.08.2024 citing judicial custody and difficulty in obtaining relevant documents.

Application of Law to Facts: The Tribunal treated the failure to produce evidence sympathetically for the later AYs due to custodial status, ordering remand. For earlier AYs, deletion of additions rendered this issue infructuous.

Treatment of Competing Arguments: Revenue contended that sufficient opportunity was granted and non-production was deliberate. The Tribunal balanced this with the assessee's custodial constraints.

Conclusion: The Tribunal ensured adherence to principles of natural justice by remanding the matter for fresh adjudication with opportunity to the assessee.

Significant Holdings:

"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."

"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."

"The issue raised by the assessee in the additional ground is purely legal in nature and adjudication of the same does not require any fresh investigation or verification of any facts or material."

"In the facts and circumstances of the case and in the interest of justice, we set aside the matter for the A.Ys 2019-20 and 2020-21 to the record of the Assessing Officer for fresh adjudication after giving an opportunity to the assessee to produce the relevant details and evidence explaining the source of credits as well as the cash deposits in the bank account of the assessee."

Core Principles Established:

- Additions under section 153A for completed/unabated assessments are unsustainable in absence of incriminating material seized during search/requisition.

- Legal grounds can be raised at any stage of proceedings and can be adjudicated without fresh fact-finding.

- The AO's jurisdiction under section 153A is limited to abated assessments or where incriminating material is found; otherwise, reopening under sections 147/148 is the proper remedy.

- Principles of natural justice require affording opportunity to the assessee to produce evidence, especially when prevented by judicial custody.

- Remand to the AO is appropriate where the assessee is unable to produce evidence due to circumstances beyond control, to ensure fair adjudication.

Final Determinations:

- Appeals for AYs 2017-18 and 2018-19 are allowed, and additions under sections 68 and 69A are deleted as unsustainable in law.

- Additional legal grounds raised by the assessee for these AYs are admitted and form basis for deletion.

- Appeals for AYs 2019-20 and 2020-21 are allowed for statistical purposes and remanded to the AO for fresh adjudication after giving the assessee opportunity to produce evidence explaining the source of credits and cash deposits.

- The Tribunal ensures observance of principles of natural justice by recognizing the assessee's custodial constraints and directing fresh opportunity.