Brief of the Case
ITAT Mumbai held In the case of Shri Vimal Kumar Rathi vs. DCIT that it is settled legal position that in the absence of any incriminating material found during search, additions made on the assessed income are unsustainable in law. In current case, there is no reference to the seized material in any of the additions made by the AO. Hence, additions are not sustainable.
Facts of the Case
The assessee is engaged in the business of trading in Plywood, Laminates & Timber etc and is an associate of the Euro Group of concerns. A search and seizure action u/s 132 was conducted on the said Euro Group on 3.8.2006 and the assessee being an associated person of this group, his residential premises was also covered. Responding to the notice issued u/s 153A, assessee filed the return of income on 22.7.2008 declaring the total income of Rs. 6,52,665/-. In the process, AO completed the assessment u/s 143(3)(ii) r.w.s 153A and the assessed income was determined at Rs.3,84,98,320/- which includes the additions (i) income from undisclosed sources towards payment of loan amounting to Rs. 3,18,54,658/- and (ii) income from undisclosed sources of Rs. 60 lakhs.
Contention of the Assessee
The ld counsel of the assessee submitted that during the search action, certain gift deeds were found and there was an inquiry into the genuineness of the gifts. During the search proceedings, the assessee replied / demonstrated the accounted nature of the said gifts. Therefore, the gift deeds found and seized during the search do not amount to “incriminating material” as the connected transactions are already accounted for in the books of accounts of the assessee. Further mentioning that the said gifts were actually never received but for the book entries by way of journal entries. He also submitted that the loans repaid out these gifts were also never involved movement of cash therefore; the said transactions do not amount to unaccounted transactions.
He further submitted that the addition made by the Assessing Officer has no nexus whatsoever to the said seized gift deeds. In this regard, he brought our attention that no addition was made on account of „gifts‟ but the additions made on account of sources for repayment of loans. This is not the issue to be considered for addition in search assessment without conveying back-up of the seized / incriminating material in case of assessments non-abated as per the provisions of section 153A.
Further, Ld Counsel for the assessee submitted that on the date of the search no assessment proceedings were pending and the assessee filed the return of income on 31.10.2002. It was further submitted that no notice u/s 143(2) / 143(1) of the Act was issued within the stipulated time initiating the assessment proceedings. Further also, the prescribed time limit for issue of notice u/s 143(2) of Act was expired before the said date of search and therefore, the assessment completed u/s 143(1) of the Act did not abate. Ld Counsel for the assessee demonstrated that as and when the assessments involved are non – abated assessment (either regular assessments are completed u/s 143(3) and the quantum proceedings are not pending or the due date for issue of notice u/s 143 ( 2 ) has expired), the additions ,if any ,in the search assessment can be made basing on any incriminating material seized u/s 132. Drawing our attention to each of the assessment order and the additions made by the AO, Ld Counsel for the assessee demonstrated that there is no reference to the seized material in any of the additions made by the AO. Ld Counsel for the assessee also argued that such additions are unsustainable in law. He also relied on following decisions viz., (i) CIT vs. Smt Shaila Agarwal, 346 ITR 130; (ii) All Cargo Global Logistics Ltd vs. DCIT [18 ITR 106] (Mum.) (SB),(iii) Spacewood Furnishers Pvt Ltd Ors vs. DGIT & Ors. [340 ITR 393 (Bom)], (iv) Shri Govind Agarwal v. ACIT being ITA No: 3389/Mum/2011 dated 10.01.2014 and (v) SKS Ispat and Power Limited vs. DCIT and others.
Held by the Revenue
The ld counsel of the revenue relied on the order of the AO and the CIT (A).
Held by CIT (A)
CIT (A) upheld the AO’s decision on account of addition of Rs. 3,18,54,658/- and regarding the addition of Rs. 60 lakhs, directed the AO to verify the concerned bank statements of the donor and to ascertain the genuineness of the gift. He further directed the AO to delete the addition in case the genuineness of the gift is treated as explained.
Held by ITAT
ITAT held that there are various judgments including Shri Govind Agarwal v. ACIT being ITA No: 3389/Mum/2011 dated 10.01.2014; All Cargo Global Logistics v. Addl.CIT; SKS Ispat and Power Limited vs. DCIT CC 45 (ITA 8746/M/12 and ITA 8747/M/12) as well as the judgment of the Hon‟ble Bombay High Court in the cases of CIT v. All Cargo Global Logistic (374 ITR 645), in which it was decided that when no assessment has abated, the question of making any addition or making disallowance which are not based on only material found during the search is bad in law. Further, in the recent past, similar issue was adjudicated by the Hon‟ble Delhi High Court in the case of CIT vs. Kabul Chawla vide ITA Nos. 707/2014 and others, dated 28.8.2015, wherein the Hon‟ble Delhi High Court has reiterated the above settled legal proposition that since no incriminating material was unearthed during the search, no additions could have been made to the income already assessed.
Further paper book clearly shows the accounted nature of the transactions in respect of the disputed gift amount of Rs. 4 Crs. It is also noted that the additions were made not on account of gifts but on account of source of funds for repayment of loans. In this regard, we find the said loans are repaid through journal entries. Therefore, Revenue Authorities are not supposed to make such additions in the assessment. Considering the factual matrix of the case as well considering the above settled legal position of the issue that in the absence of any incriminating material found during search, additions made on the assessed income are unsustainable in law, we are of the considered opinion that the additions made in the instant case are not sustainable.
Accordingly appeal of the assessee allowed.