2016 (5) TMI 1360 - AT - Income Tax

Validity of assessment u/s 153A - Held that - The assessments made u/s 153A for Assessment Years 2000-01 to 2003-04 are bad in law as the undisputed fact is that no incriminating material has been found or seized which are relatable to these years during the course of search. In respect of assessment year 2004-05 it is observed that there were certain material found and seized during the course of search. A copy of the seized documents have been placed on record before us.It is further noticed that the addition for assessment year 2004-05 is based on the seized documents. Accordingly we hold the assessment under section 153 A to be valid for assessment year 2004-05. We now deal with the appeal filed by the Revenue for assessment year 2004-05 on merits. Payment of franchisee commission - Addition on account of expenditure not related to business - Held that - The observations made by the Ld.CIT(A) that the AO has not rejected the books of accounts of the assessee and that disallowance is based on the figures as shown in the books of accounts and there has been no adverse observation made by the Ld.AO on the documentary evidence filed by the assessee is not controverted by Ld. A.O. It is further observed that the assessee has paid the commission to the payee after deducting the TDS. We therefore do not find any reason to interfere with the findings of the Ld.CIT(A).- Decided against revenue Undisclosed Franchisee Commission - Held that - The estimated addition made by the AO to the tune of Rs. 88, 00, 000/- is based on misconception of the factual position with regard to the number of outlets in existence during the relevant previous year as well as on the suspicion that the appellant must have earned undisclosed income during the year under appeal also since she had made a disclosure during the period relevant to A.Y. 2006-07. It is pertinent to note here that in the appellant s case a search & seizure operation was conducted but no incriminating material relating to the A.Y. 2004-05 has been brought on record which could support such presumption as made by the AO in her case. The presumption of the AO is based on mere suspicion and not on any evidence whatsoever - Decided against revenue Addition on non-refundable securities - CIT-A allowed partial relief - Held that - We find no infirmity in these findings of Ld. CIT(A) when the Assessing Officer himself has given a clear finding in the remand report that the submissions of assessee as to non taxability of refundable deposits is acceptable the question of challenging the order of Ld. CIT(A) on this issue does not arise - Decided against revenue Addition on account of suppression of of closing stock - Held that - As established that the appellant had only three outlets during the year whereas the AO has estimated such difference of stock in respect of six outlets which is factually incorrect. Such estimated addition without any specific evidence found during the search against the appellant cannot be sustained. Thus only the addition to the tune of the difference found in the seized documents and the declared stock for Vasant Vihar branch i.e. Rs. 2, 41, 541/- is sustained. The appellant gets relief on account of estimated addition to the tune of Rs. 12, 07.705.- Decided against revenue

Issues Involved:
1. Validity of assessments under Section 153A of the Income Tax Act for Assessment Years 2000-01 to 2003-04.
2. Validity of assessment under Section 153A for Assessment Year 2004-05.
3. Deletion of addition on account of expenditure not related to business.
4. Deletion of addition on account of undisclosed franchisee commission.
5. Deletion of addition on account of non-refundable securities.
6. Deletion of addition on account of suppression of income from self-controlled outlets.
7. Deletion of addition on account of suppression of closing stock.

Detailed Analysis:

1. Validity of Assessments under Section 153A for Assessment Years 2000-01 to 2003-04:
The assessee challenged the jurisdiction of the Assessing Officer (AO) under Section 153A, arguing that no incriminating material pertaining to the Assessment Years 2000-01 to 2003-04 was found during the search. The Tribunal referred to the provisions of Section 153A and the legal precedents, including the case of All Cargo Global Logistics Ltd. vs. DCIT and M/s. Kabul Chawla Vs ACIT, which state that assessments under Section 153A should be based on seized material. Since no incriminating material was found for these years, the Tribunal held that the assessments were bad in law and quashed the assessment orders for these years.

2. Validity of Assessment under Section 153A for Assessment Year 2004-05:
For the Assessment Year 2004-05, the Tribunal observed that certain materials were found and seized during the search. The addition for this year was based on these seized documents. Therefore, the Tribunal upheld the validity of the assessment under Section 153A for the year 2004-05.

3. Deletion of Addition on Account of Expenditure Not Related to Business:
The AO disallowed an expenditure of Rs. 60,066 on account of franchisee commission, treating it as not related to business. The CIT(A) deleted the addition, noting that the AO did not reject the books of accounts and the payment was supported by evidence, including TDS deduction. The Tribunal upheld the CIT(A)’s decision, finding no reason to interfere.

4. Deletion of Addition on Account of Undisclosed Franchisee Commission:
The AO added Rs. 88,00,000 on account of undisclosed franchisee commission, presuming the assessee had undeclared income from franchisees. The CIT(A) deleted the addition, observing that no incriminating material was found during the search to support this presumption. The Tribunal upheld the CIT(A)’s decision, stating that the addition was based on mere suspicion without evidence.

5. Deletion of Addition on Account of Non-Refundable Securities:
The AO added Rs. 17,32,511 as non-refundable security deposits, treating them as income. The CIT(A) allowed partial relief, sustaining only Rs. 3,28,336 and deleting Rs. 14,04,175, based on additional evidence and the AO’s remand report. The Tribunal found no infirmity in the CIT(A)’s findings and dismissed the revenue’s appeal on this ground.

6. Deletion of Addition on Account of Suppression of Income from Self-Controlled Outlets:
The AO added Rs. 6,64,910 for suppression of income from self-controlled outlets based on the presumption that the assessee did not disclose all franchisee agreements. The CIT(A) deleted the addition, and the Tribunal upheld this decision, noting that the AO’s addition was based on a wrong appreciation of facts.

7. Deletion of Addition on Account of Suppression of Closing Stock:
The AO added Rs. 14,49,246 for suppression of closing stock based on seized documents showing a discrepancy in stock valuation. The CIT(A) sustained only Rs. 2,41,541 for the Vasant Vihar outlet and deleted the rest, stating that the AO’s estimation for other outlets was without basis. The Tribunal upheld the CIT(A)’s findings.

Conclusion:
The Tribunal quashed the assessment orders for Assessment Years 2000-01 to 2003-04 as bad in law due to the absence of incriminating material. For Assessment Year 2004-05, the assessment under Section 153A was upheld. The Tribunal dismissed the revenue’s appeals on various grounds, including expenditure not related to business, undisclosed franchisee commission, non-refundable securities, suppression of income from self-controlled outlets, and suppression of closing stock. The assessee’s appeals for Assessment Years 2000-01 to 2003-04 were allowed, and the appeal for Assessment Year 2004-05 was dismissed for non-prosecution.

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