2021 (10) TMI 1319 - AT - Income Tax

Assessment u/s 153C - whether assessment has not abated on the date of search and thus has attained finality? - HELD THAT - The undisputed facts are that a search action under section 153A was conducted on the assessee on 11.03.2014 whereas the return was filed on 29.09.2011 meaning thereby that on the date of search the assessment has already attained finality and thus has not abated on the date of search. Thus we observe that indisputably the assessment in the instant year has not abated on the date of search. Keeping in view the said facts and circumstances we are of the considered view that addition to the income of the assessee can only be made on the basis of incriminating materials found during the course of search. In the present case there is no such incriminating material and therefore the AO has no jurisdiction to make addition in the unabated assessment. CIT(A) has passed a very reasoned order by following various decisions including that of CIT v. Continental Warehousing Corporation (Nhava Sheva) Ltd. 2015 (5) TMI 656 - BOMBAY HIGH COURT wherein it was held that no addition can be made in respect of assessments which have become final if no incriminating material is found during search. - Decided in favour of assessee. Disallowance by rejecting the expenses claimed in the P L account - HELD THAT - We find that the issue of allowability of indirect expenses incurred by the assessee by way of administrative expenses selling and marketing expenses have been decided by the lfd CIT(A) as discussed above by following the co-ordinate Bench of the Tribunal in M/s. Hiranandani Palace Garden Pvt. Ltd. 2015 (12) TMI 1649 - ITAT MUMBAI Accordingly since the assessee has incurred these expenses under the head administrative expenses marketing and selling expenses we are inclined to dismiss the ground raised by the Revenue by respectfully following the decision of the coordinate bench as discussed above. The ground no. 4 is dismissed. Addition on account of interest income on fixed deposits - HELD THAT - We find that the issue has been decided by the coordinate Bench of the Tribunal in favour of the assessee in the case of sister concern case M/s. Hiranandani Palace Garden Pvt. Ltd. 2015 (12) TMI 1649 - ITAT MUMBAI wherein it has been held that interest income from fixed deposits during the intervening period i.e their borrowing and deployment is assessable as business income and thus allowed the appeal of the assessee. Therefore we do not find any infirmity in the order of Ld. CIT(A) and accordingly the same is upheld on this issue by dismissing the ground No.5 of the Revenue s appeal. Addition of preliminary expenses incurred after the incorporation of the company - HELD THAT - As decided in own case 2015 (10) TMI 2246 - ITAT MUMBAI allowed the appeal of the assesse on this issue. Accordingly we do not find any infirmity in the order of Ld. CIT(A) on this issue. However as pointed out by the Ld. Counsel of the assessee that in the subsequent year the amount was higher however requested the Bench that the same amount of Rs. 14, 87, 380/- may kindly be allowed in this year also. Accordingly we are inclined to direct the AO to allow an amount of Rs. 14, 87, 380/-. Consequently the ground no. 6 is partly allowed.

Summary

Issues Involved:
1. Validity of assessment under section 143(3) read with section 153C of the Income Tax Act, 1961.
2. Deletion of disallowance of business expenditure.
3. Treatment of interest income on fixed deposits.
4. Deletion of disallowance of preliminary expenses.

Detailed Analysis:

1. Validity of Assessment under Section 143(3) read with Section 153C:
The Revenue challenged the CIT(A)’s decision to treat the assessment order under section 143(3) read with section 153C as invalid. The CIT(A) held that the assessment had attained finality on the date of search and could not be reopened unless fresh incriminating material was found. The Tribunal upheld this view, citing the Bombay High Court’s decision in Continental Warehousing Corporation, which states that completed assessments do not abate and additions can only be made based on incriminating material found during the search. The Tribunal dismissed the Revenue’s grounds, affirming that no incriminating material was found in this case.

2. Deletion of Disallowance of Business Expenditure:
The AO disallowed Rs. 3,20,86,059/- of business expenses, arguing that these should be added to the project work in progress. The CIT(A) deleted this disallowance, following the Tribunal’s decision in the case of a group concern, M/s. Hiranandani Palace Garden Pvt. Ltd., which allowed such expenses as per accounting standards. The Tribunal upheld the CIT(A)’s decision, noting that the expenses were administrative, marketing, and selling expenses, which are allowable even under the project completion method.

3. Treatment of Interest Income on Fixed Deposits:
The AO treated Rs. 55,04,550/- earned as interest on fixed deposits as “Income from Other Sources.” The CIT(A) reversed this, treating it as “Business Income” based on the Tribunal’s decision in the case of M/s. Hiranandani Palace Garden Pvt. Ltd., where such interest was considered inextricably linked to the business and thus assessable as business income. The Tribunal upheld the CIT(A)’s decision, dismissing the Revenue’s ground.

4. Deletion of Disallowance of Preliminary Expenses:
The AO disallowed preliminary expenses of Rs. 48,11,076/-, stating they were incurred after business commencement and not for setting up a new unit, thus not allowable under section 35D. The CIT(A) allowed the expenses, following the Tribunal’s decision in the assessee’s own case for a previous year, where such expenses were deemed allowable. The Tribunal upheld the CIT(A)’s decision but limited the allowable amount to Rs. 14,87,380/- as per the precedent.

Consolidated Appeals:
For the other assessment years (2012-13, 2013-14, 2014-15), the Tribunal applied the same reasoning and decisions as in the appeal for A.Y. 2011-12. The grounds related to the deletion of business expenditure and preliminary expenses were similarly dismissed or partly allowed.

Conclusion:
The Tribunal’s order primarily upheld the CIT(A)’s decisions on all issues, affirming that no additions could be made without incriminating material, allowing business and preliminary expenses, and treating interest income as business income. The appeals of the Revenue were partly allowed, specifically limiting the allowable preliminary expenses to Rs. 14,87,380/-.