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2019 (5) TMI 1961 - AT - Income TaxAssessment u/s 153A - disallowance of interest paid on loan holding that the loan funds were not utilized for the business purposes - whether no incriminating material was found during the course of search and addition has been made merely on the basis of information called during the course of assessment proceedings? - HELD THAT - we find that the assessee filed regular return of income u/s.139 of the Act for Assessment Year on 30.09.2008. Assessee's case was not selected for scrutiny, as notice u/s. 143(2) of the Act was not issued to the assessee on or before 30.09.2009. Search was conducted on 29.1.2014. Impugned addition is purely based on information called during the course of search proceedings. In this situation the assessment for Assessment Year 2008-09 is to be treated as non abated assessments for which additions could be made only on the basis of incriminating material found during the course of search. Therefore in the given facts and circumstances of the case and respectfully following the decision of the co-ordinate bench referred above, we direct the Ld. A.O. to delete the disallowance. Whether no addition was called for as no incriminating material was found during the course of search u/s. 132? - Assessment Year 2009-10 - HELD THAT - No merit in this ground because the assessee has not filed regular return of income u/s. 139 of the Act. Return of income for Assessment Year 2009-10 was filed on 28.1.2016 i.e. after the date of search u/s. 132 of the Act. Therefore assessment year 2009-10 cannot be treated as non abated assessment and Ld. A.O. was well within his powers u/s. 153A r.w.s. 143(3) of the Act to carry out regular assessment proceedings for Assessment Year 2009-10 and for making additions if any and it was not necessary to prove the nexus with the incriminating material found during the course of search. Therefore the assessee fails to succeed in this legal ground raised. Disallowance of interest paid on loan - HELD THAT - Allegation of the lower authorities that the bank loan was not utilised for business purposes has no legs to stand. Further the assessee has incurred consistent losses. No business activity is carried out since 1.4.2008. Bank loan was outstanding. For repayment of bank loan the partners have brought additional capital to repay the loan. In these facts and circumstances, we find no justification in the action of Ld. A.O. disallowing the interest paid on loan to the bank completely ignoring the fact that during the year under appeal assessee is having NIL revenue and it is not the case of the revenue authorities that the assessee has claimed the interest to reduce its tax liability. We accordingly delete the disallowance for Assessment Year 2009-10 and allow this issue raised in Ground No. 2 of assessee's appeal. Addition u/s 68 - Unexplained recovery of excess withdrawal of capital - unexplained cash credit for the capital addition by partners to the assessee firm - HELD THAT - No major amount of cash has been deposited before the issuance of the cheque to the assessee firm. Ld. A.O. has not conducted any enquiry from Mr. Manoj Jain before making the alleged addition. The alleged amounts of capital contribution is for repaying the bank loan outstanding in the name of assessee firm. We therefore are satisfied that the assessee has successfully proved the identity, genuineness and creditworthiness of the capital contribution received from the partner Mr. Manoj Jain. Therefore no addition was called for u/s. 68 As capital contribution by another partner Mr. Manish Rawatiya assessee failed to file confirmation letter, income tax return, bank statement and proof of source of income. However, Ld. A.O. has not conducted any enquiry into the matter by issuing notices to Shri Manish Rawatiya calling for the necessary information to prove the creditworthiness - thus in the interest of justice assessee deserves one more opportunity to prove the creditworthiness of the partner Mr. Manish Rawatiya giving capital contribution. Appeal partly allowed for statistical purposes.
Issues Involved:
1. No incriminating material found during the search. 2. Disallowance of interest paid on loans for non-business purposes. 3. Unexplained recovery of excess withdrawal of capital by partners. Issue-wise Detailed Analysis: 1. No Incriminating Material Found During the Search: The assessee challenged the additions made by the AO on the grounds that no incriminating material was found during the search. The Tribunal noted that for Assessment Year (AY) 2008-09, the assessee had filed a regular return under section 139, and no notice under section 143(2) was issued before the search. Following the decision in Sainath Coloniers V ACIT and CIT V/s. Kabul Chawla, the Tribunal held that no additions could be made for AY 2008-09 as it was a non-abated assessment and directed the AO to delete the disallowance of Rs. 2,24,326/-. For AYs 2009-10, 2010-11, 2011-12, 2013-14, and 2014-15, the Tribunal held that since the returns were filed after the search, these were not non-abated assessments. Therefore, the AO was justified in making additions without the need for incriminating material. Thus, the ground raised by the assessee for these years was dismissed. 2. Disallowance of Interest Paid on Loans for Non-Business Purposes: The assessee argued that the interest paid on loans should not be disallowed as the loans were utilized for business purposes. The Tribunal found that the loan taken from Krishna Mercantile Bank during the financial year 2005-06 was indeed used for business purposes, as evidenced by the audited balance sheets. The Tribunal noted that the business activities ceased from 1.4.2008, and no revenue was generated thereafter. The interest payments were not claimed to reduce tax liability, and thus, the disallowance was unwarranted. Consequently, the Tribunal deleted the disallowance of interest for AY 2009-10 (Rs. 2,11,264/-), AY 2010-11 (Rs. 2,08,819/-), and AY 2011-12 (Rs. 2,29,024/-). 3. Unexplained Recovery of Excess Withdrawal of Capital by Partners: The AO treated the capital contributions by partners as unexplained credits under section 68. The Tribunal examined the contributions from Mr. Manoj Jain and found that the identity, genuineness, and creditworthiness were satisfactorily proven through confirmations, bank statements, and income tax returns. Therefore, the additions for the contributions made by Mr. Manoj Jain were deleted for AYs 2009-10 (Rs. 3,00,000/-), 2010-11 (Rs. 21,000/-), 2011-12 (Rs. 6,65,000/-), 2013-14 (Rs. 50,000/-), and 2014-15 (Rs. 10,766/-). For the contribution made by another partner, Mr. Manish Rawatiya (Rs. 8,52,000/- for AY 2011-12), the Tribunal noted that the assessee failed to provide sufficient evidence of creditworthiness. The Tribunal remanded the matter back to the AO for further investigation, directing the assessee to provide necessary documents and allowing the AO to conduct inquiries. Conclusion: The appeals for AYs 2008-09, 2009-10, 2010-11, 2013-14, and 2014-15 were allowed, while the appeal for AY 2011-12 was partly allowed for statistical purposes. The Tribunal directed the AO to delete the disallowances and additions as specified and to conduct further inquiries where necessary.
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