2016 (9) TMI 1290 - AT - Income Tax

Assessment made u/s 153A/153C - Disallowing the interest paid and business expenses against interest income received from partnership firm - Held that - No addition in the income can be made in any assessment u/s 153A/153C of the Act without any incrementing material found during the course of search As could be seen AO has duly examined the claim of the assessee with respect to the deduction of interest expenses on loan borrowed from the interest income earned from the loans advanced and has disallowed Rs. 38, 19, 800/- and Rs. 90, 000 out of the interest expenditure claim of Rs. 96, 24, 943/-. Apart from the above the assessee has also voluntarily offered disallowance of interest of Rs. 9, 92, 861/- u/s 14A of the Act. Thus the assessee claimed deduction of balance amount of interest expenditure of Rs. 47, 22, 282/- towards loan borrowed against interest income of Rs. 99 01, 472/- from loan advances which claim was duly examined and allowed by the AO while framing the assessment orders dated 31.12.2009 u/s 153A read with Section 143(3) of the Act pursuant to first search on 19.07.2007 and no new incriminating material was found or unearthed during search u/s 132(1) of the Act having being brought on record before the Tribunal and the assessment framed vide orders dated 31.12.2009 being concluded assessment as framed prior to date of second search on 29/03/2011 we are of considered view that the concluded assessments in the instant appeal cannot be disturbed on the same set of material facts as prevailing when the assessment was framed u/s 153A read with Section 143(3) of the Act on 31.12.2009 in pursuant to first search on 19.07.2007 and hence we dismiss the appeal filed by the Revenue - Decided in favour of assessee

Summary

Issues Involved:
1. Disallowance of interest paid and business expenses against interest income.
2. Jurisdiction of the Assessing Officer (AO) to make additions under section 153A without incriminating material found during the search.

Detailed Analysis:

Disallowance of Interest Paid and Business Expenses:
The primary issue in these appeals is the disallowance of interest paid (Rs. 1,94,715/-) and business expenses (Rs. 1,82,715/-) against the interest income (Rs. 1,07,375/-) received from a partnership firm. The assessee, an employee of the Kanakia Group and a partner in M/s. D.V. Corporation, filed returns declaring income of Rs. 2,50,444/- for the year 2005-06. A search and seizure action under section 132(1) was conducted on 29/3/2011, leading to a notice under section 153A. The AO disallowed the claimed deductions, considering them personal in nature, and completed the assessment on an income of Rs. 6,28,270/-. The CIT(A) upheld this disallowance, leading to the present appeal.

Jurisdiction of AO to Make Additions Without Incriminating Material:
The assessee raised an additional ground challenging the jurisdiction of the AO to make additions under section 153A read with section 143(3) without any incriminating material found during the search. The assessee argued that for non-abated years, any addition must be based on material found during the search. The Tribunal allowed the assessee to raise this additional ground, noting it was purely legal and did not require new facts.

The Tribunal examined the chronology of events and noted that the assessment for the year 2005-06 was non-abated. The assessee relied on several judgments, including All Cargo Global Logistics (374 ITR 645), CIT v. Kabul Chawla (380 ITR 573), and others, to argue that no addition can be made without incriminating material found during the search.

The Tribunal considered the decision in ITA No. 3192-3196/Mum/2014 involving the Kanakia Group, where it was held that no addition can be made for non-abated years without incriminating material. The Tribunal reiterated that in the absence of such material, the AO's additions were unsustainable.

Conclusion:
The Tribunal allowed the additional ground raised by the assessee, setting aside the additions made by the AO and upheld by the CIT(A). Consequently, the other grounds raised by the assessee became infructuous. The appeals for both assessment years 2005-06 and 2008-09 were allowed, and the orders of the CIT(A) were set aside.

Order Pronouncement:
The order was pronounced in the open court on 30th September, 2016, allowing both appeals filed by the assessee.