2025 (7) TMI 1355 - AT - Income Tax

Unexplained cash credit u/s. 68 - Addition u/s. 69C in respect of bogus commission and bogus interest paid on unsecured loans respectively - HELD THAT - We note that the assessee has repaid these loans during the subsequent assessment year 2015-16 and the confirmations of repayments along bank statements are placed in the paper book. It is also pertinent to note that the department has accepted these repayments in the AY 2015-16 and has not made any addition. Consequently the addition made by the AO u/s. 68 of the Act on account of loans being unexplained and also towards bogus brokerage paid for arranging loans and in respect of cash payment of interest are bad in law and can not be sustained. The case of the assessee finds support from the decision of Ayachi Chandrashekhar Narsangji 2013 (12) TMI 372 - GUJARAT HIGH COURT wherein as held that where the AO has duly accepted the repayment of loan to be genuine no addition can be made in the year in which the said money was raised by the assessee. Therefore on this count also the order framed by the AO is incorrect and cannot be sustained. AO jurisdiction u/s 153A to reopen assessment years beyond six years (up to the tenth year) - As the impugned assessment year being the 8th assessment year from the searched year and therefore the same falls beyond the 6th assessment year but before the 10th assessment year from the searched year and therefore the provisions of section 153A can only be invoked subject to fulfillment of certain conditions as envisaged in 4th proviso to section 153A. We note that in this case there was no reference made by the Assessing Officer to any such books of account or documents or seized documents which revealed that income has escaped assessment nor has provided that income in the form of asset as defined in explanation 2 to section 153A has escaped assessment. We note that the AO has relied on the statement which were not recorded in the course of search on the assessee but recorded in some other proceedings u/s. 131. We also note that the assessee was not provided or furnished or confronted with the said statements and it is not even on the record and also under which proceedings the statements were recorded. The clause 9(b) provides that income referred to in clause (a) above or part thereof has escaped for such year or years and clause (c) provides that search u/s. 132 is initiated or requisition u/s. 132A is made on n or after 1st day of April 2017. Thus AO has jurisdiction to reopen the assessment u/s. 153A if the amount of income represented in the form of asset which has escaped assessment is likely to be Rs. 50 lakh or more in the relevant assessment year or in aggregate in the relevant assessment years but none of these conditions are fulfilled and there was no such reference ever made or noted by the AO to this effect. Therefore even on this plea of the assessee the order passed by the AO cannot be sustained. Assessee appeal Allowed.

Summary

ISSUES:

Whether additions under section 68 of the Income Tax Act, 1961, on account of unexplained cash credits (unsecured loans) can be sustained in an unabated/completed assessment year in the absence of incriminating material found during search under section 132.Whether additions under section 69C of the Act for bogus commission and bogus interest paid on unsecured loans are sustainable without incriminating evidence seized during search.Whether the Assessing Officer has jurisdiction under section 153A of the Act to reopen assessment years beyond six years (up to the tenth year) preceding the searched year without possession of incriminating material revealing undisclosed income represented in the form of assets valued at Rs. 50 lakh or more.Whether statements recorded under section 131 of the Act, not seized during search and not confronted to the assessee, can be treated as incriminating material to justify additions under section 153A.Whether repayment of unsecured loans in subsequent assessment years, accepted by the department, precludes additions in the year of receipt of such loans.

RULINGS / HOLDINGS:

In an unabated/completed assessment year, additions under section 68 cannot be made in the absence of any "incriminating material found during search" as held by the Hon'ble Supreme Court and various High Courts; additions based solely on information from return or audit report are unsustainable.Additions under section 69C for bogus commission and bogus interest paid on unsecured loans are not sustainable without incriminating material seized during search; reliance on statements not recorded during search is insufficient.Jurisdiction under section 153A to reopen assessments beyond six years (up to tenth year) is conditional upon the Assessing Officer being in possession of incriminating books of account or documents revealing undisclosed income represented in the form of assets valued Rs. 50 lakh or more, as specified in the fourth proviso to section 153A; absent such jurisdictional fact, reopening is invalid.Statements recorded under section 131, which are not seized during search and not furnished or confronted to the assessee, do not constitute incriminating material for the purpose of section 153A proceedings.Where unsecured loans taken in an assessment year are repaid in subsequent years and such repayment is accepted by the department, no addition can be made in the year of receipt of the loan as held by the Gujarat High Court.

RATIONALE:

The Court applied the legal framework under sections 132, 153A, 68, and 69C of the Income Tax Act, 1961, as well as judicial precedents including the Hon'ble Supreme Court's ruling in Pr. CIT, Central-3 vs. Abhisar Buildwell Pvt. Ltd., which clarified that in completed/unabated assessments, additions under section 153A must be based on incriminating material found during search; otherwise, such assessments cannot be reopened except under sections 147/148 subject to their conditions.The fourth proviso to section 153A, introduced by Finance Act, 2017, restricts reopening beyond six years to cases where undisclosed income represented in the form of assets valued Rs. 50 lakh or more is found during search; the Court emphasized the statutory definition of "asset" excludes liabilities and revenue items, thus additions based on liabilities like loans without corresponding undisclosed assets are invalid.The Court relied on consistent High Court and Tribunal decisions holding that mere statements or information not seized during search cannot be treated as incriminating material to invoke section 153A jurisdiction.The Court recognized that acceptance of repayment of loans in subsequent years negates the presumption of unexplained income in the year of receipt, following the principle established by the Gujarat High Court.No dissenting or concurring opinions were noted; the judgment reflects a doctrinal adherence to the principle limiting the scope of section 153A assessments in completed years to incriminating material found during search, reinforcing taxpayer protection against arbitrary reopening.