Assessee subjected to search, cannot be placed on a different pedestal than assessee who is not subjected to search

Facts of the Case/Proceedings before AO

1. The assessment for AY 2011-12 completed on 30-03- 2015, did not abate consequent to the second search. The AO thereafter initiated proceedings u/s 153A for AY 2011-12 on 05-11-2016 and notices u/s 143(2) & 142(1) of the Act were issued calling for details/information.

2. The AO relied on statements of third parties and observed that the share capital of Rs.35.50 crores raised by the assessee in the earlier year/s and its deployment in acquiring shares of other bodies corporate were bogus and made addition u/s 69 of the Act

Proceedings before CIT(A)

The CIT(A) vide its detailed order deleted the said addition. Aggrieved by which department filed an appeal.

Proceedings before ITAT

Arguments of DR

• An entry operator had admitted under oath on several dates, that the assessee company was originally controlled and managed by him through dummy directors who functioned as per his directions.
• the assessee had availed accommodation entries towards raising equity capital, making investments, and thereafter to sell investments through these entry operators.
• The cash flow showed that there were cash deposits at the 5th to 7th layer of the transaction trail which raised serious doubts on the creditworthiness of the purchasers of the investments.

Arguments of AR

• The statement of entry operator was factually incorrect and the same was not borne out from any incriminating material found in the course of search.
• The entry operator in his statement nowhere implicated the assessee or the Bankatesh Group directly or indirectly. He only explained general modus operandi followed by him for providing accommodation entries
• The entry operator had admitted of providing accommodation entries to several business houses and mentioned names. None of the questions or answers remotely suggested that the assessee or Bankatesh Group was beneficiary of accommodation entries.
• The transactional charts prepared by the AO and were only a smokescreen. Not only was the AO able to identify the persons who purchased the investments sold by the assessee but the AO was also able to ascertain the source as well as source of source of funds.
• Even with regard to the cash deposits in bank accounts at the end of the 5th -7th layer no evidence was brought on record by the AO which would even remotely suggest that cash deposited belonged to the assessee and represented unaccounted income of the assessee.
• The AO also did not bring on record any tangible material to prove that the ultimate source of money received by the assessee was the cash deposited in these accounts.
• AO’s conclusion that these well-known companies connived with the assessee for routing its unaccounted monies, was nothing short of a fantastic story, bordering fantasy.
• The AO passed a lengthy order but not able to bring on record any clinching material which showed that the payments made by these well-known companies were treated to be bogus or fictitious in their respective income tax assessments, from which one may draw an adverse inference against the assessee.
• The name of the assessee did not feature in any of panchanamas drawn upon conclusion of the search and therefore in absence of any evidence to show that search u/s 132 was carried out against the assessee the initiation of proceeding/s 153A and consequent order passed u/s 153A/143(3) was bad in law and ab initio void.
• None of the documents, which were seized by the Investigating Authorities in the course of search contained any incriminating material which could even remotely be linked to the addition of Rs.35,54,34,500/- made in the assessment order.
• He further submitted that statements of so-called entry operators extracted in the impugned order were recorded by different officers of the Income-tax Department in the year 2013/2014 and therefore it could not constitute incriminating material found in the course of a search conducted on 02-03-2016 consequent to which impugned assessment proceedings emanated.

 Judgment of ITAT:

• Once a search u/s 132 is conducted against a person then irrespective of whether any incriminating material is found, the AO is required to proceed against such person for completing the assessments u/s 153A of the Act for the specified six assessment years. To this extent, there is no quarrel.
• Merely because an assessee is subjected to search u/s 132, such fact by itself does not give carte blanche to the Department to subject such an assessee to the rigors of the assessment afresh for all the six years. It is for this reason that the Parliament in its wisdom has categorically created two classes among the six years, (a) un-abated assessment and (b) abated assessments.
• In case of abated assessments, the AO is free to frame the assessment in a regular manner and determine the correct taxable income for the relevant year inter alia including the undisclosed income, having regard to the provisions of the Act.
• However, in relation to unabated assessments, which were not pending on the date of search, there is an embargo on the powers of the AO. In case unabated assessments, the AO can re-assess the income only to the extent and with reference to any incriminating material which the Revenue has unearthed in the course of search. Merely because an assessee is subjected to search, he cannot be placed on a different pedestal or put in a more disadvantageous position than an assessee who is not subjected to search unless in the course of search some incriminating documents or evidence or information is gathered by the Investigating authorities so as to vest the AO with the necessary powers to make additions to the total income in relation to assessments which did not abate on account of search. Considering these aspects the Hon’ble Delhi High Court in the case of CIT vs Kabul Chawla reported in (2016) 380 ITR 573 (Del)
• In our considered opinion such a general statement-making sweeping allegation was not sufficient to justify the humongous addition while framing the addition u/s 153A of the Act, which necessarily had to be based on some tangible incriminating material found in the course of search.

The AO in his report dated 05-02-2020 did not dispute the fact that name of the assessee did not feature in any of the panchamas drawn up upon the conclusion of the search, but he furnished a copy of the warrant of authorization dated 02-03-2016 which proved that the assessee’s name featured therein. In our considered view therefore, although the name of the assessee does not feature in the panchnama, in view of the fact that warrant of authorization executed by the Department contained its name, the proceedings u/s 153A were validly initiated against the assessee.