By TIOL News Service

HYDERABAD, NOV 24, 2015: THE issue is - Whether for the purpose of completing assessments u/s. 153A/153C, AO could take into consideration material other than what was available during the search and seizure operation. NO is the verdict.

Facts of the case

The assessee is a private limited company and is engaged in the manufacturing of sponge iron. There was a search and seizure operations u/s. 132 conducted on 29-01-2009 along with another group company of Sunder Steel Cases. Assessee was issued notice u/s. 153A and in response, Assessee filed returns of income by admitting NIL income. In the course of proceedings u/s. 153A, Assessing Officer (AO) in all the years examined the share application money and unsecured loans received and in the absence of details, the said amounts were brought to tax in respective assessment years. Thus, in all the impugned assessment years, the assessments were completed treating the unsecured loans, share application money received was treated as 'income'. Apart from the above, another issue in AY. 2004-05 is with reference to unexplained investment in purchase of land on which an amount of Rs. 2,60,000/- was added but deleted by Ld.CIT(A). Revenue has raised Ground No.2 that CIT(A) erred in admitting additional evidence filed by Assessee in contravention of Rule 46A. Revenue is not contesting the merits of the issue. Briefly stated, during the year, Assessee purchased land at Anthireddy Guda Village, Kothur Mandal, Mahaboobnagar District for a sum of Rs. 12,60,000/- as per agreement of sale. The same was registered for a sum of Rs. 6 Lakhs and Assessee accounted the same in the Books of Account. In the course of search and seizure operations, Assessee was asked to explain the difference in sale consideration of Rs. 6,60,000/-. Assessee admitted Rs. 4 Lakhs towards undisclosed payment made for purchase of land. AO brought the balance Rs. 2,60,000/- as unexplained investment.

On appeal, CIT(A) accepting the above contentions, deleted the amount by stating that the observations of the AO and the submissions of the assessee. The property under reference was purchased for Rs. 12,60,000/- and registered for Rs. 6.00 lacs, with a sum of Rs. 4,00,000/- was admitted by the assessee, as unexplained investment, though it was paid by the previous promoters and the failure of the Assessee to produce the details for the payment of Rs. 2,60,000/- resulted in the further addition. As could be seen from the facts brought on record, the assessee was right in contending that the company was not in existence at the time of execution of the agreement and the agreement made on behalf of non-existing company was null and void and the company was not bound by it. The income arising out of the said unexplained investment, before the incorporation of company need to be taxed in the hands of the promoters, who happened to be the earlier promoters. Thus, based on the further facts that have been brought on record, I am of the considered opinion that the addition of Rs. 2,60,000/- is not sustainable in the hands of the appellant company and this ground of appeal is treated as Allowed".

Having heard the matter, the Tribunal held that,

++ we do not see any additional evidence being admitted by the CIT(A) in disposing of this issue. Assessee only stated the dates and amounts involved and entire information was available with AO consequent to the search and seizure proceedings. Since the Revenue has raised the ground only on the issue of additional evidence and since we do not find any additional evidence being taken/ admitted by the CIT(A), there is no merit in the Revenue's ground. Accordingly, the same is rejected. We are of the opinion that order of CIT(A) in deleting the additions cannot be upheld. It is true that ITAT Special Bench in the case of All Cargo Logistics Ltd., Vs. DCIT 2012-TIOL-391-ITAT-MUM-SB, held that in cases where assessments are not abated, the assessment u/s. 153A will be made on the basis of incriminating material. However, this opinion that not upheld by the jurisdictional High Court in the case of Gopal Lal Badruka Vs. DCIT [346 ITR 106] which was rendered on 15-12-2011 much before the order of the CIT(A). In fact, CIT(A) is bound to follow the jurisdictional High Court order. Not only the jurisdictional High Court, but also the Allahabad High Court and Delhi High Courts have held that for completing the assessments u/s. 153A/153C, AO could take into consideration material other than what was available during the search and seizure operation. In view of this, we are of the opinion that the order of CIT(A) cannot be upheld;

++ it is one of the contentions of AO that Assessee has not furnished any information in the course of assessment proceedings. Therefore, without going into the merits of the additions made, we are of the opinion that these issues should be re-examined by the AO by giving proper opportunity to Assessee. Assessee also contended before CIT(A) that due opportunity was not given. In view of this, we set aside the order of CIT(A) on this issue and also order of the AO and restore the entire assessment to the file of AO to examine the issue of share application money and unsecured loans received by Assesseecompany in the impugned assessment years afresh. Needless to say that Assessee should be given due opportunity by the AO. In the result, Revenue's grounds on this issue are considered allowed for statistical purposes. In the result, Revenue's appeal for AY. 2004-05 is considered allowed partly for statistical purposes and appeals in AYs. 2005-06 & 2006-07 are allowed for statistical purposes. All the three Crossobjections, being on the same issue are considered allowed for statistical purposes.

(See 2015-TIOL-1919-ITAT-HYD)