By TIOL News Service

NEW DELHI, JUNE 07, 2018: THE ISSUE BEFORE THE TRIBUNAL IS - Whether assessee's failure to prove genuineness of transaction during scrutiny proceedings, authorizes the Department to scrutinize assessee's return on the said ground in an assessment u/s 153A, in absence of any incriminating material found during search. NO IS THE ANSWER.

Facts of the case:

The assesse company is in the business of construction and development of properties. In pursuence of the same, the assessee used to enter into collaboration agreements with the sellers of properties and then demolishes the existing building at its own expenses. Thereafter, it develops, reconstructs and completes fresh building at the said property after getting the plans sanctioned from the MCD. The shares of the fresh building were then divided between the owner and the company as per the agreement along with proportionate undivided, indivisible and impartible share of ownership rights in the land underneath. The company then disposes off its share of property and also makes booking of the said portions falling in its share in whole or in parts to prospective buyers. Now, during the year under consideration, a search action was carried out at the business as well as residential property of the assessee company, wherein it was found to have received unsecured loans of Rs 61,70,730/- vide Cheques from S.K. Land Finance Co. and Rs 5,00,000/- from one Mr Praveen Sethi as well as Rs 1,00,00,000/- from M/s. Oceanic Homes Pvt. Ltd. The assessee was asked to file the details of advances received during the year along with supporting evidences to prove the source of these loans. However, despite giving sufficient opportunity, the assessee only filed confirmations from creditors which was not sufficient for proving either the source of loan, creditworthiness of the party or the genuineness of transaction. The AO further observed that mere filing of confirmation letter was not sufficient proof of the genuineness of credit entries in his books. Moreover, the confirmation was also deliberately filed just before the completion of scrutiny proceedings so that the AO did not get time to conduct independent enquiry for verification of genuineness of the party and loan receipts. The AO therefore held that since the assessee had failed to discharge the onus of proving the source and genuineness of unsecured loan taken by him, the amount of Rs 1,65,70,730/- deserved to be added as unexplained income in assessee’s hand u/s 68. There was other additions in respect of interest expenses in the P&L A/c u/s 36(1)(iii) and set off of the carry forward losses of previous years.

Tribunal held that,

++ it is seen that the FAA in his order has mentioned that the AO in remand report has categorically admitted that there is no incriminating material with relation to the transactions with the parties found during the search. The FAA therefore categoricaly found that all the loans have been repaid before the search through account payee cheques. That being the case, the additions made by AO without there being any "mating material found during search are hit by the by the judgement of the Special Bench in All Cargo Global Logistics - 2012-TIOL-391-ITAT-MUM-SB and hence, fit to be deleted. It is submitted that the assesse could not prove the creditworthiness during scrutiny proceedings but since no incriminating materials were found during the search, the AO lacked the jurisdiction to scrutinize the assessee’s return on these points in an assessment u/s 153A. Therefore the addition made on issues that stood finalized before search and in respect of which no incriminating material has been found, is liable to be quashed for want of jurisdiction alone. Accordingly the same are deleted by the FAA;

++ it is seen that search u/s 132(1) took place in M. L. Guyal Group of cases and the Assessment Order was passed u/s 153A r.w.s. Section 143(3). Now, in case of Kabul Chawla, the Delhi High Court has observed that although Section 153A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post search material or information available with the AO which can be related to the evidence found, it does not mean that the assessment "can be arbitrary or made without any relevance or nexus with the seized material. Obviously an assessment has to be made under this Section only on the basis of seized material." The High Court further opined that in the absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. Thus, completed assessments can be interfered with by the AO while making the assessment under Section 153A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment. Thus, there is no need to interfere with the findings of FAA as the issue herein is already covered in favour of assessee by the Delhi High Court decision of Kabul Chawla.

(See 2018-TIOL-806-ITAT-DEL)