Facts of the Case

The assessee, a real estate company, was subjected to search and seizure proceedings under Section 132 on 05.12.2013 as part of a group search. Pursuant thereto, notice under Section 153A was issued requiring filing of returns.

For Assessment Year 2011-12, the assessee had originally filed its return declaring income of ₹4,17,790, which had been processed under Section 143(1). In response to the Section 153A notice, the assessee filed a return declaring the same income.

During assessment proceedings, the Assessing Officer observed that the assessee had shown ₹2.50 crore as sundry creditor in the name of Shri Ajeya Singh. According to the AO, the assessee failed to satisfactorily establish the identity, genuineness, and creditworthiness of the creditor. The amount was therefore treated as unexplained cash credit and added to income under Section 68 in an assessment framed under Section 153A read with Section 144.

Issues Involved

  1. Whether an addition under Section 68 can be made in a completed assessment year during proceedings under Section 153A in the absence of incriminating material found during search.
  2. Whether the amount of ₹2.50 crore shown as sundry creditor constituted unexplained cash credit or a genuine trade advance.
  3. Applicability of judicial precedents regarding the scope of assessments under Section 153A.

Petitioner’s Arguments (Revenue)

  • The Assessing Officer rightly invoked Section 68 as the assessee failed to prove identity, genuineness, and creditworthiness of the creditor.
  • Even in absence of incriminating material, the AO has the power to assess total income under Section 153A.
  • The Commissioner (Appeals) wrongly relied on the decision in Kabul Chawla and ignored jurisdictional High Court rulings such as Raj Kumar Arora.
  • The financial statements did not clearly establish the source or nature of the amount received.

Respondent’s Arguments (Assessee)

  • The original assessment for the relevant year was already completed and no proceedings were pending on the date of search; therefore, the assessment did not abate.
  • No incriminating material relating to the impugned amount was found during search.
  • The amount represented a trade advance received through banking channels for purchase of land, duly recorded in books of account.
  • Confirmation, PAN details, bank statements, and supporting documents of the creditor were furnished.
  • The advance was later returned through banking channels when the land transaction did not materialize.
  • Reliance was placed on various judicial precedents holding that additions in non-abated years require incriminating material.

Court Order / Findings (ITAT — Dissenting Order Context)

  • The Tribunal examined whether the assessment year under consideration had abated on the date of search.
  • Since the return had already been processed and no assessment proceedings were pending, the year was treated as a completed (non-abated) assessment year.
  • In such circumstances, additions under Section 153A can generally be made only on the basis of incriminating material discovered during search.
  • The amount of ₹2.50 crore was recorded in the books as a trade advance received through banking channels.
  • No specific incriminating document relating to this transaction was found during the search.
  • Consequently, the addition made under Section 68 lacked the necessary foundation of search-based evidence.
  • The appellate authority’s deletion of the addition was therefore examined in light of judicial precedents on the scope of Section 153A.

Important Clarification

  • For completed (non-abated) assessment years, the power of the Assessing Officer under Section 153A is restricted, and additions ordinarily require incriminating material found during search.
  • Amounts recorded in regular books of account and transacted through banking channels may not automatically qualify as unexplained credits in absence of adverse evidence.
  • The distinction between trade advances and unsecured loans is relevant when applying Section 68.

Link to download the order - https://itat.gov.in/public/files/upload/1651753363-Final%20Dissenting%20Order%20ITA%20No.%20103%20Alld%202017.pdf

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