2016 (5) TMI 1307 - AT - Income Tax

Validity of assessment u/s 153A - addition share capital and unsecured loans - Held that - We do not find any merit for the addition made by the AO with respect to share capital and unsecured loans. The disallowance made by the AO on account of personal use of vehicles was on estimate basis no incriminating material was found to indicate that directors of the company have used the vehicles for their personal purpose. Accordingly disallowance made by estimating personal elements in respect of expenditure on vehicle is not justified u/s.153A when no incriminating materials in respect to personal use of vehicle were found during the course of search. Since we have already decided the legal issues in favour of the assessee we are not going into merit of the addition so made. Addition on account of unsupported purchases - Held that - Copy of Ledger Account of the said party in the books of assessee; copy of Ledger Account of the said party in the books of Assessee Company in which it is reflected the invoices booked and the bank payment made against the said invoices; Copy of bank statement of the Assessee Company from which payment has been made to the said party; and Copy of Ledger Account of M/s. Soma Enterprise Ltd. (Customer) in the books of Assessee Company along with copies of invoices raised by Assessee on said party. For rendering of services to this customer assessee has availed services from M/s. Manav Impex. It appears from the above-mentioned documents that the Assessee Company has made payment to M/s. Manav Impex towards charges for excavation of under-ground tunnel by shaft. The said subcontract work is a part of the main project work undertaken by the Company for M/s Soma Enterprise Limited in relation to the Koyan Dam Project. Further it was also shown from the copy of bank statement and copy of ledger account that the payments made to M/s Manav Impex was through normal banking channels. We set aside the issue of addition on account of purchase to the file of AO for deciding afresh by considering above documents discussed by us. Disallowance on account of personal usage of car - AO has disallowed suo motu estimated 10% on account of personal use of car by the Director. The assessee is a corporate entity therefore in view of the decision of Hon ble Gujarat High Court in the case of Sayaji Iron & Engg. Co. 2001 (7) TMI 70 - GUJARAT High Court no disallowance on the plea of personal use can be made in the case of corporate entity. Accordingly we direct the AO to delete the said disallowance. Determining short term capital gain - Held that - We have considered rival contentions and found that CIT(A) has already directed the assessee to approach the AO u/s.154 of the Act with the required details for seeking necessary rectification. Accordingly we do not find any infirmity in the order of CIT(A). We further direct the AO to immediately dispose the application filed u/s.154 for correcting the error in the computation of short term capital gains offered by the assessee. We direct accordingly. Allowing the set off of carry forward loss of earlier assessment years by the CIT(A) - Held that - In the interest of justice we restore this issue back to the file of CIT(A) for adjudicating ground with regard to set off of carry forward loss of earlier assessment years. The CIT(A) is also directed to give credit for taxed paid by the assessee or deducted at source while computing tax liability of the assessee.

Issues Involved:
1. Validity of the assessment order passed by the Assessing Officer under Section 153A read with Section 143(3) of the Income Tax Act.
2. Violation of principles of natural justice.
3. Legality of additions made under Section 153A read with Section 143(3) of the Act.
4. Merit of additions related to share capital, unsecured loans, and personal usage of car.
5. Determination of short-term capital gains.
6. Set off of carried forward losses of earlier assessment years.
7. Credit for taxes paid or deducted.
8. Charging of interest under Sections 234A, 234B, and 234C of the Act.

Detailed Analysis:

1. Validity of the Assessment Order under Section 153A:
The assessee contended that the Assessing Officer (AO) could make an assessment under Section 153A only on the basis of material found during the search. Since no incriminating material was found, the assessment was argued to be bad in law. The CIT(A) dismissed this ground, relying on the Delhi High Court's decision in CIT vs. Anil Kumar Bhatia, which mandates the AO to initiate proceedings under Section 153A consequent to a search. The Tribunal, however, noted that in cases where assessments are not abated, additions can only be made based on incriminating material found during the search. Since no such material was found, the Tribunal held that the additions made by the AO were not justified.

2. Violation of Principles of Natural Justice:
The assessee argued that the order was passed without giving a proper opportunity of hearing, violating principles of natural justice. The CIT(A) dismissed this ground, stating that adequate opportunity was provided during the appeal proceedings. The Tribunal did not find any specific violation of natural justice in the given context.

3. Legality of Additions Made:
The Tribunal examined the legality of additions made under Section 153A read with Section 143(3). It was argued that for the assessment years 2004-05 and 2005-06, no incriminating material was found during the search, and the assessments had already attained finality. The Tribunal agreed with the assessee, citing the Special Bench decision in All Cargo Global Logistics Ltd. and the Bombay High Court decision in Continental Warehousing Corporation, which held that no additions can be made in respect of unabated assessments if no incriminating material is found during the search.

4. Merit of Additions Related to Share Capital, Unsecured Loans, and Personal Usage of Car:
- Share Capital and Unsecured Loans: The assessee provided various documents to prove the identity, genuineness, and creditworthiness of the share applicants and loan creditors. The AO's findings were based on the investigation wing's report, which was not confronted with the assessee. The Tribunal held that the assessee had discharged its onus, and the AO failed to bring any positive evidence to discredit the documents provided by the assessee.
- Personal Usage of Car: The AO disallowed a portion of car expenses on the ground of personal usage. The Tribunal held that in the case of a corporate entity, no disallowance can be made on the plea of personal use, citing the Gujarat High Court's decision in Sayaji Iron & Engg. Co.

5. Determination of Short-Term Capital Gains:
The CIT(A) directed the assessee to approach the AO under Section 154 for rectification of errors in the computation of short-term capital gains. The Tribunal upheld this direction and further instructed the AO to dispose of the application promptly.

6. Set Off of Carried Forward Losses:
The Tribunal restored the issue of set off of carried forward losses to the file of the CIT(A) for adjudication, directing the CIT(A) to give credit for taxes paid or deducted at source while computing the tax liability.

7. Credit for Taxes Paid or Deducted:
The Tribunal directed the CIT(A) to ensure that credit for taxes paid or deducted at source is given while computing the tax liability of the assessee.

8. Charging of Interest Under Sections 234A, 234B, and 234C:
The Tribunal noted that the charging of interest under these sections is consequential in nature and depends on the final computation of the tax liability.

Conclusion:
The appeals for the assessment years 2004-05 and 2005-06 were allowed, and the additions made by the AO were deleted. The appeal for the assessment year 2006-07 was allowed in part for statistical purposes, with specific directions for the AO and CIT(A) to re-examine certain issues.

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