No addition can be made in respect of completed assessments if no incriminating material is found during the course of search.

The DCIT Vs. M/s.Creative Trendz Pvt. Ltd.

[I.T(SS)A No’s.272/AHD/2016 & 273/AHD/2016]

Facts of the case

The assessee is a company engaged in the business of embroidery of cloth and job work. The assessee filed its Return of Income for year for A.Y 2009-10 on 15.09.2009 declaring total income of Rs.1,85,10,810/-. The Return of Income was processed and accepted under section 143(1) of the Act. A search action under section 132 was carried out on 18.02.2014 in the premises of the assessee. Consequent upon the search, a notice under section 153A dated 28.11.2014 was issued to the assessee to file Return of Income for the year under consideration. The Assessing Officer after serving notice under section 143(2) of the Act proceeded for re-assessment of income furnished in response to notice under section 153A of the Act. During the assessment the AO issued notice to the assessee vide notice dated 16.03.2016 as to why the share capital of Rs.3.13 crore raised during the A.Y. 2009-10 and Rs.3.57 crore in A.Y. 2010-11 should not be treated as unexplained cash credit. The assessee in its reply dated 23.03.2016 stated that assessment completed under section 143(3) cannot be interfered without any incriminating material found during the course of search.

The AO did not accept the contention of the assessee and concluded that the assessee had failed to pass the test as required under section 68 of the Act to prove the identity of shareholders genuineness of the transaction and credit worthiness of the creditor. The AO made addition of Rs.3.13 crore as unexplained cash credit.

AR’s Arguments

The Ld. AR for the assessee submitted that the assessment
for the year was completed under section 143(3) and no
incriminating material was found during the search related with
the share application money. The investor company has sufficient
share capital and reserve funds available with them. The AR further submitted that the AO in the entire assessment, nowhere mentioned that any incriminating material was found during the search on 18.02.2014. He further submitted that “It is settled law by various High Courts and Hon’ble Supreme Court’s decision that no addition can be made in unabated assessment in absence of incriminating material in relation to the assessment year.” Further, no incriminating material related with share application money was recovered in the search carried at the premises of the assessee, thus, the AO was not justified to make addition under section 68 of the Act against the assessee. The Ld. AR relied on the judgement of Hon’ble Delhi High Court in the case of Kabul Chawla [2015] 93 CCH 0210 (Delhi HC) and the decision of Special Bench of All Cargo Global Logistics Ltd. vs. DCIT 147 TTJ 0513 (SB) which has been upheld by the Hon’ble Bombay High Court, in CIT vs. Continental Warehousing corporation [2015] 58 taxmann.com 78 (Bom) and held that in absence of incriminating material unearthed during the search, the addition is not permissible.

DR’s Arguments

The Ld. DR for the Revenue had submitted that as per explanation in section 153A (d), the AO has power to assess or re-assess the total income in respect of six assessment years. Nowhere is it mentioned that AO cannot make assessment under section 153A if not incriminating material is found.

Findings of the case

The Ld. Tribunal held that the Ld. DR failed to bring any fact that assessment for the year under consideration was pending at the time of search on 14.02.2014 of that the issue of share capital was not the subject matter in the assessment was not reported while filing the Return of Income in the assessment year under consideration. The Ld. DR referred the explanation attached with section 153A that the AO has power to assess or re-assessing total income in respect of each assessment year falling within six assessment years. There is no dispute regarding statutory provision in the Act. However, the Hon’ble Bombay Delhi High Court has laid down Law that no addition in absence of incriminating material can be made in respect of assessment which has become final if no incriminating material is found during the search. The Ld. DR failed to bring any contrary fact to our notice that any incriminating material was found during the search. No contrary law is brought to our notice. Therefore, the Ld. Tribunal have no option except to affirm the order to Ld. CIT(A) and hence, the appeal of the revenue was dismissed.

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