2015 (10) TMI 2021 - AT - Income Tax

Scope of assessments made u/s 153A - Held that - The only reason for initiating the proceedings u/s 153C of the Act is the admission made in the sworn statement, which has been later retracted by the assessee. The materials found during the course of survey operations conducted in the hands of lessee, in our view, could not also be placed reliance, since the lessee himself has denied the entries made in the loose sheets found during the course of survey and hence the loose sheets itself remain uncorroborated. The admission made in the sworn statement may be sufficient to initiate proceedings u/s 153C of the Act. However the additions made without reference to any of the seized materials are liable to be deleted, since these assessment years fall under the category of completed proceedings and no incriminating material supporting the additions made in these years were found during the course of search proceedings.In view of the foregoing discussions, we set aside the order of the Ld CIT(A) passed for AY 2002-03 to 2007-08 and quash the assessment orders passed for these years. - Decided in favour of assessee. Agricultural income declared by the assessee was assessed under section 68 of the Act by rejecting the claim of availability of agricultural activity - Held that - In the case of A.T. Rayudu, the father of the assessee, we have directed the AO to disallow 25% of the agricultural income and we had followed the decision rendered by the coordinate bench in the case of A.Ammaji and M/s Avnash estates & resorts Ltd. Consistent with the view taken in the above said cases, we direct the AO to disallow 25% of the agricultural income and assess the same as income of the assessee under the head income from other sources. - Decided in favour of assessee in part Undisclosed jewellery - Held that - Assessee has furnished the ownership details of the jewellery, but the said details were rejected by the assessing officer by pointing out certain defects. In respect of the jewelleries claimed to belong to the sister of Shri Avnash, the same was rejected on the reasoning that the customs documents were not available. Similarly the claim made by his wife was rejected on the reasoning that the parents and grant parents of Avnas s wife did not furnish wealth tax returns. However, in our view, what is required to be seen is Whether the assessee could be considered to have made investment in jewellery out of his undisclosed income. The family status, the locker details, the recovery made from bed room, claim made by his sister, the submissions made by the parents of Avnas s wife, if considered from the angle of human probabilities, in our view, would give negative answer. Accordingly, we are of the view that the addition of ₹ 30.00 lakhs made purely on the basis of sworn statement, that too without any corroborative materials, was not justified. Accordingly, we set aside the order of Ld CIT(A) on this issue and direct the AO to delete the said addition. - Decided in favour of assessee. Addition towards deemed dividend under section 2(22)(e) - Held that - We notice from the details of loans availed by the sister concerns that the personal guarantee has been given by the assessee and also by the parents of the assessee. In some cases, the sister concerns have also provided guarantee. Hence, it is not really a case, where the assessee alone has given the personal guarantee. Further we notice that the assessee has not given any of his securities as collateral security in connection with the loan availed by the sister concerns. Hence, we are unable to accept the contentions of the assessee that the advances received by the assessee should be considered as normal business transactions.However, we notice that the Ld CIT(A) has set aside the matter to the file of the AO in order to ascertain the correct amount of accumulated profits and also to work out the correct amount of advances received by the assessee - Decided in favour of assessee for statistical purposes. Enhancement of rental income - Held that - We have noticed that the loose sheets have been impounded from lessee and according to Ld A.R, the lessee himself has not accepted the contents of the loose paper. In our view, it is the lessee who has to first rebut the contents of the impounded materials. Only if it is conclusively established that the lessee has paid the rent as stated in the loose sheets, then the assessee should be question and a decision has to be taken. In the instant case, the assessing officer has not brought any material to show that the contents of loose papers have been accepted by the lessee from whom they were impounded or the contents of the loose papers have been established. Under these set of facts, we are of the view that the assessing officer has made the addition on inferences without proving the contents of the loose papers and the same cannot be sustained. Accordingly, we set aside the order of Ld CIT(A) on this issue and direct the AO to delete the addition made towards rental income. - Decided in favour of assessee.

Issues Involved:
1. Scope of assessments under Section 153A of the Act.
2. Addition of agricultural income under Section 68 of the Act.
3. Addition towards deemed dividend under Section 2(22)(e) of the Act.
4. Validity of proceedings initiated under Section 153C of the Act.
5. Disallowance of interest on loans due to alleged diversion of funds.

Detailed Analysis:

1. Scope of Assessments under Section 153A of the Act:
The primary legal issue discussed was the scope of assessments under Section 153A of the Act, particularly whether additions could be made only on the basis of incriminating material found during the search. The Tribunal noted that the assessments for years not pending on the date of search (concluded assessments) could only be disturbed if incriminating materials were found during the search. This interpretation was supported by various judicial precedents, including the decision of the Special Bench in the case of All Cargo Global Logistics Ltd, which was later affirmed by the Bombay High Court.

2. Addition of Agricultural Income under Section 68 of the Act:
For the assessment years 2002-03 to 2006-07, it was concluded that since the assessments were not pending on the date of the search, the additions made without reference to any incriminating materials were beyond the scope of Section 153A. Consequently, the Tribunal directed the deletion of these additions. For the assessment years 2007-08 and 2008-09, where proceedings were pending, the Tribunal followed a consistent view taken in other related cases and directed the disallowance of 25% of the agricultural income declared by the assessee, treating it as income from other sources.

3. Addition towards Deemed Dividend under Section 2(22)(e) of the Act:
The Tribunal found that for the years 2002-03 to 2006-07, the additions towards deemed dividend were made without reference to any incriminating material found during the search. Therefore, these additions were directed to be deleted. For the assessment year 2008-09, the Tribunal upheld the CIT(A)'s decision to rework the deemed dividend after considering the correct amount of accumulated profits and advances received.

4. Validity of Proceedings Initiated under Section 153C of the Act:
The Tribunal examined the validity of proceedings initiated under Section 153C for the assessee, A. Avnash. It was found that the proceedings were initiated based on a sworn statement taken during the search, which was later retracted. The Tribunal noted that no incriminating material was found during the search for the assessment years 2002-03 to 2007-08, and the additions made were based on information already available on record. Consequently, the Tribunal quashed the assessment orders for these years. For the assessment year 2008-09, the Tribunal addressed specific additions, directing partial relief for agricultural income and deleting the addition for undisclosed jewellery based on the retraction and lack of corroborative evidence.

5. Disallowance of Interest on Loans due to Alleged Diversion of Funds:
The Tribunal addressed the disallowance of interest on loans for M/s ATR Warehousing P Ltd, where the AO disallowed interest due to alleged diversion of funds to sister concerns. The Tribunal found that the documents relied upon by the AO (a letter from SBI and an auditor's query) were not incriminating materials but opinions. Consequently, the disallowance for the years 2002-03 to 2006-07 was directed to be deleted. For the years 2007-08 and 2008-09, the Tribunal directed the AO to exclude investments made in subsidiary companies from the disallowance calculation, following the principles of commercial expediency and precedents set by higher courts.

Conclusion:
The Tribunal's judgment focused on the scope of assessments under Section 153A, emphasizing that additions for concluded assessments could only be based on incriminating materials found during the search. Additions made without such materials were directed to be deleted. The Tribunal also provided specific reliefs and directions regarding the disallowance of agricultural income, deemed dividend, and interest on loans, ensuring consistency with judicial precedents and principles of commercial expediency.

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