There Cannot Be Any Addition Of The Regular Items Which Were Disclosed By The Assessee In The Regular Books Of Accounts: ITAT

The Ahmedabad Bench of the Income Tax Appellate Tribunal (ITAT) has held that there cannot be any addition of the regular items that were disclosed by the assessee in the regular books of accounts.

The bench of Madhumita Roy (Judicial Member) and Waseem Ahmed (Accountant Member) has observed that the completed assessment cannot be disturbed in the absence of any incriminating material or documents, whereas the assessment or reassessment can be made with respect to abated assessment years. The word 'assess' in Section 153A/153C of the Act is relatable to abated proceedings (i.e., those pending on the date of search) and the word 'reassess' to the completed assessment proceedings.

The assessee is an individual deriving income from all sources. The assessee is a partner in several firms as well as a key person, promotor, or director of the Globe group of companies. There was a search proceeding under Section 132 carried out at the premises of the assessee on January 23, 2015. During the investigation and assessment, it was found that the four companies controlled or managed by the assessee received huge sums in the form of share capital and premiums during the financial years 2008–09 to 2014–15.

The AO held that the claim of exempted capital gain by the assessee on account of the sale of impugned shares was fictitious and added it to the total income of the assessee as income from unexplained sources.

The assessee submitted that he purchased 21000 shares of KGN Industries Ltd. during the month of December 2006 at Rs. 1 per share. The reason for the low price was that the script got delisted by the order of the BSE. The consideration was paid in cash out of a bank withdrawal, but bank statements could not be arranged due to a considerable lapse in time.

However, the genuineness of the purchase of shares cannot be doubted, as the purchase of shares was duly supported by the share certificate issued in his name, which was furnished during the assessment proceedings.

The script of the company got re-listed with a new name and split into 10 shares for 1 share each; thereafter, he made a request to the company to issue a new share certificate, but the same was received by him only in January 2012. Therefore, it was not dematerialized earlier. The shares were sold in a hurry due to the fact that the price was regularly declining.

The CIT (A) held that the AO was not justified in treating exempt long-term capital gains as income from unexplained sources. Accordingly, the A.O. is directed to treat the capital gain on the sale of shares of Rs. 58,08,455/- as long-term capital gain exempt under Section 10(38).

The tribunal held that there cannot be any addition of regular items shown in the books of accounts until and unless certain materials of an incriminating nature are found during the search. The word incriminating has not been defined under the Act, but it refers to materials, documents, or information that were collected during the search proceedings but not produced in the original assessment proceeding.

Case Title: DCIT Versus Shri Basant R. Agarwal

Case No.: IT(SS)A Nos. 309 to 313/AHD/2019

Date: 12/05/2023

Counsel For Appellant: Sudhendu Das

Counsel For Respondent: Mehul K. Patel

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