2017 (9) TMI 1866 - AT - Income Tax

Assessment u/s 153A - additions were made during the course of search seizure operation relating to unsecured loans - addition on basis of incriminating material only - HELD THAT - In the assessment order the assessing officer has not brought on record any evidence found during the course of search relating to the additions made. On verification of the assessment order it is evident that the addition was made on the basis of the entries made in the regular books of accounts but there was no reference with regard to the seized material. Hence the reliance of the Ld. D.R. on statement of facts that the assessment was made on the basis of seized material is not correct. Ld. D.R. further argued the legal position subsequent to the introduction of provisions u/s 153A of the Act and 153C of the Act for search assessments the incriminating material not necessary is not tenable. This issue has been considered by the special bench in the case of All Cargo Logistics Limited cited 2012 (7) TMI 222 - ITAT MUMBAI(SB) and answered that the assessment u/s 153A of the Act will be made on the basis of incriminating material. Therefore the argument of the Ld. D.R. lacks merit on this issue. As discussed earlier in this appeal no addition was made on the basis of seized material and the assessment got completed - Decided in favour of assessee.

Summary

Issues Involved:

1. Justification of addition towards unexplained credits.
2. Justification of disallowance of interest on the above credits.
3. Legality of additions in an assessment under section 143(3) read with section 153A in the absence of incriminating material found during the search.

Issue-wise Detailed Analysis:

1. Justification of Addition Towards Unexplained Credits:

The assessee filed a return of income declaring total income of Rs. 3,32,697/- for the assessment year 2001-02. The Assessing Officer (A.O.) completed the assessment under section 143(3) read with section 153A of the Income Tax Act, making an addition of Rs. 11,65,000/- as unexplained cash credits. The assessee contested this addition, arguing that it was not justified as it was based on entries recorded in the regular books of accounts and not on any incriminating material found during the search. The Tribunal held that in the absence of incriminating material found during the search, the A.O. should not have made the additions. The Tribunal referred to the decision in the case of Y.V. Anjaneyulu Vs. DCIT, where it was held that no addition under section 153A read with section 143(3) can be made if no incriminating material was found during the search for completed assessments.

2. Justification of Disallowance of Interest on the Above Credits:

The A.O. also disallowed interest of Rs. 1,79,585/- on the unexplained credits. The assessee argued that this disallowance was not justified as it was based on regular books of accounts and not on any incriminating material found during the search. The Tribunal, consistent with its stance on unexplained credits, held that the disallowance of interest was also not justified in the absence of any incriminating material found during the search.

3. Legality of Additions in an Assessment Under Section 143(3) Read with Section 153A in the Absence of Incriminating Material Found During the Search:

The Tribunal admitted an additional ground raised by the assessee challenging the legality of the additions under section 143(3) read with section 153A without any incriminating material found during the search. The Tribunal referred to several precedents, including the decision of the ITAT Special Bench in the case of All Cargo Global Logistics Limited and the decision of the Hon’ble Andhra Pradesh High Court in the case of CIT Vs. M/s. AMR India Limited. These precedents established that in the absence of incriminating material, the A.O. has no jurisdiction to make additions for completed assessments. The Tribunal reiterated that the assessment under section 153A should be based on incriminating material found during the search and not on regular books of accounts.

The Tribunal also addressed the argument of the Department Representative (D.R.) that the A.O. is legally bound to take up assessments irrespective of seized material or incriminating material. The Tribunal rejected this argument, emphasizing that the assessment should be based on incriminating material found during the search. The Tribunal concluded that the A.O. had no jurisdiction to make the additions in question as they were not based on any incriminating material found during the search.

Conclusion:

The Tribunal set aside the orders of the lower authorities and allowed the appeal of the assessee, directing the A.O. to delete the additions made towards unexplained credits and disallowance of interest. The Tribunal's decision was pronounced in the open court on 27th September 2017.