2021 (9) TMI 1471 - AT - Income Tax

Assessment u/s 153A - Assessee argued assessment was a completed assessment and not abated besides that no incriminating material was found during the course of search - HELD THAT - We find that the assessee has filed original return of income on 29.09.2013 and search took place on 23.07.2015. Therefore, assessment for Assessment Year 2013-14 was concluded assessment as on the date of search. From order of the ld AO we do not find that addition has been made on the basis of the any incriminating material found during the course of search. CIT(A) has also merely relied upon the statement of director and other person recorded during the course of search. Further, merely statement could not have been used in absence of any incriminating material found during the course of search corroborating such statement. Further, merely because the books of account was not available during the course of search such non availability of books of account also cannot be used against the assessee to make an addition in a concluded assessment. In view this, we find the issue is squarely covered by the decision of Kabul Chawla 2015 (9) TMI 80 - DELHI HIGH COURT . Even during the course of hearing also ld DR could not show us any incriminating material based on which the addition has been made. Accordingly, we direct the ld AO to delete the above addition made without any incriminating evidence and reverse the orders of the lower authorities. Appeal of assessee allowed. Disallowances of expenses incurred for running the business of the assessee - Estimation of income - assessment u/s 153A was completed wherein, total income of the assessee was computed @ 1% total sales - CIT(A) who in fact reduced the net profit to 0.5% instead of 1% determined by the assessee - HELD THAT - On reading of the assessment order it is apparent that the income of the assessee was arrived at by rejecting books of accounts of assessee in terms of provision of section 145(3) of the act. He has determined profit of the assessee at 1% of the total bogus sales issued by the assessee. Such determination of the profit at the rate of 1% which was reduced by the learned CIT A 0.5% has resulted in deriving at the net profit of the assessee after deduction of all the expenses incurred by the assessee. Therefore, there is no room for allowance of any expenditure to the assessee where net profit is determined. Even otherwise the ld CIT(A) has reduced the quantum of percentage from 1% to 0.5% for allowing the expenditure to the assessee. In view of the above facts we do not find any infirmity in the order of the lower authorities.- Decided against assessee.

Summary

Issues:
1. Validity of assessment under section 153A for Assessment Year 2013-14
2. Disallowance of expenses for running the business for Assessment Year 2013-14
3. Disallowance of expenses for running the business for Assessment Year 2015-16

Issue 1: Validity of assessment under section 153A for Assessment Year 2013-14:
- The assessee challenged the assessment under section 153A for AY 2013-14, contending that it was a concluded assessment and no incriminating material was found during the search.
- The search was conducted on a group of cases, including the assessee, and incriminating papers were seized. The assessment was framed under section 153A, resulting in an addition to the income.
- The CIT(A) confirmed the addition but reduced the commission income rate from 1% to 0.5%. The assessee argued that no incriminating material was found, and the addition should be deleted.
- The ITAT held that the assessment for AY 2013-14 was concluded before the search, and no incriminating material was used for the addition. Citing the decision in CIT Vs. Kabul Chawla, the ITAT directed the AO to delete the addition made without any incriminating evidence.

Issue 2: Disallowance of expenses for running the business for Assessment Year 2013-14:
- The assessee contested the disallowance of expenses for running the business in AY 2013-14, arguing that the expenses were duly recorded and necessary for business purposes.
- The CIT(A) upheld the disallowance, stating that no regular books of account were available during the search, and the director claimed the company was not operational.
- The ITAT found that the disallowance was not based on incriminating material and that the absence of books during the search could not justify the addition. The ITAT directed the AO to delete the addition for AY 2013-14.

Issue 3: Disallowance of expenses for running the business for Assessment Year 2015-16:
- The assessee challenged the disallowance of expenses for running the business in AY 2015-16, arguing that the expenses were necessary for conducting the business.
- The CIT(A) reduced the net profit rate from 1% to 0.5% but upheld the disallowance of expenses. The assessee claimed that the expenses should be allowed as deduction.
- The ITAT observed that the income was determined by rejecting the books of accounts and calculating profit based on bogus sales. The ITAT upheld the disallowance, stating that no additional expenses could be allowed when the net profit was already determined.
- Consequently, the appeal for AY 2015-16 was dismissed.

In conclusion, the ITAT allowed the appeal for Assessment Year 2013-14, directing the deletion of additions made without incriminating evidence. However, the appeal for Assessment Year 2015-16 was dismissed as the disallowance of expenses was upheld based on the determination of net profit from rejected books of accounts.