The Mumbai Bench of the Income Tax Appellate Tribunal ( ITAT ) deleted addition under Section 153A of the Income Tax Act and held that discrepancies in maintaining KYC Documentation does not constitute incriminating material.
The AO on the basis of the details provided by the assessee and various evidences gathered during the search and seizure action as well as the report of the Special Auditor, passed under section 143(3) read with section 153A of the Income Tax Act, came to the conclusion that the assessee is not a bank within the provisions of the Banking Regulation Act and therefore is not empowered to carry on the business of banking. It was further held that the assessee is a credit co-operative society, which is empowered to mobilise deposits and grant loans to its members only.
The AO held that the assessee has indulged in the gross violations of not only the Co-operative Society Act, 2002 but also its own byelaws by deviating from the core principles and as asked in its Memorandum. The AO held that on perusal of documents found during the search and furnished during the assessment proceedings, it was found that the majority of the members of the assessee have not submitted their PAN cards and in numerous cases, photo identities are also not present in these documents.
The CIT(A), dismissed the ground challenging the additions made vide order passed under section 153A of the Income Tax Act in the absence of incriminating material found during the course of the search on the basis that large no. of incriminating material in the form of KYC discrepancies, pay-in slips, and other evidences were found during the course of the search. The CIT(A) further held that once it is accepted that the assessee is in the business of mobilisation of savings and provision of credit facilities, the entire transactions cannot be added as income of the assessee.
The bench of Sandeep Singh Karhail ( Judicial Member ) and B.R. Baskaran ( Accountant Member ) observed that “For discrepancies in maintaining KYC documentation, account opening form, and violation of society byelaws, action can be taken against the assessee under the relevant statute or by the concerned authority, such as RBI, however, the same cannot lead to an addition in the hands of the assessee under the Act. Therefore, in view of the aforesaid findings, we are of the considered view that the material/documents found during the course of the search are not of such a nature which incriminates or militates against the assessee.”
“From the above, it is established that the material/documents found during the course of search are not incriminating in nature. Therefore, the AO could not have made any addition under section 153A of the Income Tax Act in respect of concluded/unabated assessments for the assessment years 2012-13 to 2015-16. Accordingly, the additions made by the AO for the assessment years 2012-13 to 2015-16 are deleted. Since the relief has been granted to the assessee on this short issue, the other grounds raised in the assessee’s appeals are rendered academic and therefore are left open” the Bench noted.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
