2014 (4) TMI 1111 - AT - Income Tax

Validity of the notice issued u/s 153A - Held that - The additions made by the AO in the absence of any incriminating material are not sustainable. Accordingly, additions are deleted and the ground no.1 raised by the assessee is allowed. Addition u/s 68 on account of unexplained gifts received - Held that - Disallowance made u/s 68 is uncalled for as the same is beyond the scope of section 153A / 153C of the Act. No incriminating material in support of the additions made u/s 68 of the Act was brought to our notice by the Revenue. Therefore, the addition made u/s 68 of the Act is deleted - Decided in favour of assessee Disallowance u/s 14A - Held that - The disallowance made u/s 14A is uncalled for as the same is beyond the scope of section 153A / 153C of the Act. No incriminating material was brought to our notice by the Revenue in support of the additions made u/s 14A of the Act. Therefore, the addition made u/s 14A of the Act is deleted - Decided in favour of assessee Additions made on account of sale proceeds on shares - Held that - Similar issue connected to the sale proceeds on shares of Database Finance Ltd came up for discussion and adjudication in the case of Nikki Agarwal (2014 (2) TMI 937 - ITAT MUMBAI ) wherein we held that there is no case of addition in that case. Disallowance u/s 14A - Held that - t is a fact that the relevant assessment years i.e., 2006-07 and 2007-08 under consideration are outside the scope of provisions of Rule 8D. The said provisions cannot be treated as applicable to the A.Y.2006-07 & 2007-08 under consideration when the same is precluded by the Hon ble Bombay High Court in the case of Godrej & Boyce Mfg. Co. Ltd. Vs. DCIT, reported in (2010 (8) TMI 77 - BOMBAY HIGH COURT ). Thus we restrict the disallowance to 5% of the total exempt income.

Issues Involved:
1. Validity of assessment orders under Section 153A.
2. Addition under Section 68 for unexplained gifts.
3. Disallowance under Section 14A.
4. Treatment of share transactions and capital gains.
5. Unexplained investments in shares.
6. Condonation of delay in filing cross objections.

Detailed Analysis:

1. Validity of Assessment Orders under Section 153A:
The Tribunal examined whether the assessment orders under Section 153A were valid when no incriminating material was found during the search. The Tribunal referred to various judgments, including the Rajasthan High Court's decision in Jai Steel (India) Ltd and the Special Bench decision in All Cargo Global Logistics Ltd, which held that in the absence of incriminating material, the assessment cannot be disturbed. The Tribunal concluded that the additions made by the AO in the absence of any incriminating material were not sustainable and should be deleted.

2. Addition under Section 68 for Unexplained Gifts:
The Tribunal addressed the addition of Rs. 13,00,000 under Section 68 for unexplained gifts received by the assessee. The Tribunal noted that no incriminating material was found during the search to support the addition. Referring to the case of Govind Agarwal (HUF) vs. DCIT, the Tribunal held that in the absence of incriminating material, no addition under Section 68 could be made in a completed assessment. Consequently, the addition was deleted.

3. Disallowance under Section 14A:
The Tribunal examined the disallowance under Section 14A, which pertains to expenditure related to exempt income. The Tribunal referred to the Bombay High Court's judgment in Godrej & Boyce Mfg. Co. Ltd. vs. DCIT, which held that Rule 8D was not applicable retrospectively. The Tribunal restricted the disallowance to 5% of the total exempt income for the assessment years 2006-07 and 2007-08.

4. Treatment of Share Transactions and Capital Gains:
The Tribunal reviewed the addition made by the AO on account of sale proceeds from shares of Database Finance Ltd. The Tribunal noted that there was no incriminating material suggesting that the transactions were bogus. Referring to the case of Nikki Agarwal, the Tribunal held that no addition could be made based on mere suspicion. The Tribunal dismissed the Revenue's appeals on this issue as academic.

5. Unexplained Investments in Shares:
The Tribunal addressed the addition made by the AO on account of undisclosed investment in shares of Dunstan Goods Pvt. Ltd. The Tribunal noted that the investments were recorded in the books of accounts and no incriminating documents were found during the search. The Tribunal upheld the CIT(A)'s decision to delete the addition, stating that no addition could be made under Section 69 without documentary evidence of unexplained investment.

6. Condonation of Delay in Filing Cross Objections:
The Tribunal considered the assessee's request for condonation of delay in filing cross objections. The Tribunal noted that the delay was due to an inadvertent mistake by the assessee's counsel. However, since the main ground agitated by the Revenue was already decided in favor of the assessee, the Tribunal dismissed the cross objections as academic.

Conclusion:
In the case of Shri Deepak Agarwal, the assessee's appeals for AYs 2003-04 to 2005-06 were allowed, and the cross objection for AY 2006-07 was dismissed. The Revenue's appeals for AYs 2003-04 to 2005-06 were dismissed, and the appeals for AYs 2006-07 and 2007-08 were partly allowed. In the case of Shri Devesh Agarwal, the assessee's cross objection for AY 2006-07 was dismissed, and the Revenue's appeals for AYs 2006-07 and 2007-08 were partly allowed.

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