By TIOL News Service

NEW DELHI, NOV 01, 2018: THE ISSUE IS - Whether merely based on statements recorded u/s 132(4) and post-search enquiry, addition can be made in respect of concluded proceeding when no incriminating material is found or seized during the course of search. - NO IS THE VERDICT.

Facts of the case

The assessee company, one of the group companies of MMG (MM Aggarwal) group, engaged in the business of preparation, manufacturing, packing and sale of soft drinks, had filed return for relevant AY. Search & seizure operation was carried out, in the case of M.M. Aggarwal Group of companies. The case of the assessee was also covered in the search. During search documents and data storage devices, etc. belonging to the assessee also were found and seized. Notice u/s 153A of the Act was issued to the assessee. During the course of assessment proceedings, AO observed that the assessee had raised share capital of Rs. 24 lacs from Rhone Sales (P) Ltd. And Rs. 15 lacs from Rapi Marketing (P) Ltd. And further observed that the pre-search enquiry revealed that the assessee group had received substantial amount of share capital from various shell companies which did not have any factual identity and creditworthiness. It was further found that the investment by such entities with the assessee group was mainly in the form of share capital which was subscribed at an abnormally high premium which lacked genuineness. on their part to have agreed to subscribe at such premium without having received any return either in the form of dividends or appreciation in the value of their investment till date. The AO held that the assessee failed to establish the identity, creditworthiness and genuineness of the parties wherefrom funds were received by the investor of the assessee who were also group companies of the assessee group. Since the assessee had received an amount of Rs. 39,00,000/- towards share capital and share premium and could not discharge the burden cast on it to his satisfaction, AO treated the same as unexplained cash credit u/s 68 of the Act as the income of the assessee for the relevant period under consideration. On appeal, CIT(A) upheld the validity of assumption of jurisdiction u/s 153A and also upheld the addition made by AO.

Tribunal held that,

++ the AO made addition of Rs.39 lacs in the hands of the assessee u/s 68 of the Act basing on various enquiries conducted and statements recorded of various persons u/s 132(4) and 131, stating that the assessee failed to substantiate to his satisfaction the identity and creditworthiness of the investor and the genuineness of the transaction with cogent evidence. According to the Assessing Officer, since the assessee could not produce the investor company and since its returned income is meager considering the huge investment made by it in the shares of the assessee company with huge premium, therefore, the provisions of section 68 are clearly attracted;

++ in CIT vs. Best Infrastructure (India) (P) Ltd, jurisdictional High Court has held that statements recorded u/s 132(4) of the Act do not by themselves constitute incriminating material. It could be seen from the order of the CIT(A) that there was no surrender of income for the impugned assessment year and the surrender was only for the assessment year 2008-09 which too was retracted within two months. He has also observed that the statement was non descriptive and vague and subject to cross checking of fact to be explained after access to books of accounts. The addition made by the Assessing Officer u/s 68 of the Act is not based on any incriminating material and is based on statements recorded during search u/s 132(4) and post-search enquiries. The addition of Rs. 39 lacs was not made on the basis of any incriminating material, but is based on statements recorded during the search u/s 132(4) and post-search enquiries. It has been held in various decisions that completed assessments cannot be disturbed u/s 153A in absence of any incriminating material;

++ since in the instant case, addition of Rs. 39 lacs was made on the basis of statements recorded u/s 132(4) and post-search enquiry and no incriminating material was found/seized during the course of search, therefore, following the decisions, it was hold that no addition could have been made u/s 153A since the assessment was not abated in the instant case. Thus CIT(A) was not justified in upholding the action of the AO in assuming jurisdiction u/s 153A of the Act. Accordingly, the addition made by the AO and upheld by the CIT(A) in the 153A assessment proceedings being void ab-initio are deleted. The appeal filed by the assessee is accordingly allowed.

(See 2018-TIOL-1989-ITAT-DEL)