2016 (8) TMI 910 - AT - Income Tax

Denial of claim of expenditure on pasupalan - Held that - The expenditures claimed by the assessee are not unreasonable and deserves to be allowed. We, accordingly, direct the A.O. to allow the expenditure claimed by the assessee as per his computation of income. - Decided in favour of assessee. Addition on rental income from letting out of property for Bakery business.- Held that - The stud farm belongs to the assessee, therefore, only the assessee has a right for any rental income from the usage of the premises and there is a strong presumption that Shri Harshadbhai Barot must be collecting rent on behalf of the assessee. Therefore, on preponderance of probabilities, we hold that the rental income belongs to the assessee and have been rightly taxed in his hands. We, confirm the findings of the First Appellate Authority.- Decided against assessee.

Issues Involved:
1. Validity of the assessment made under Section 153A of the Income Tax Act.
2. Disallowance of expenditure and denial of losses incurred by the assessee towards sale of milk and pasupalan.
3. Additions made on account of alleged rental income from letting out property for bakery business.

Detailed Analysis:

1. Validity of the Assessment Made Under Section 153A:
The assessee challenged the validity of the assessment made under Section 153A of the Income Tax Act, arguing that the assessment was made without any incriminating material found during the search. The search and seizure operation was conducted at the residential premises of the assessee on 01.11.2006, and proceedings under Section 153A were initiated. The assessee contended that the lower authorities erred in making the assessment under Section 153A without any incriminating material found at the time of the search.

The Tribunal held that if no incriminating material is found, the assessment made under Section 153A without any reference to incriminating material is bad in law. This view was supported by the decision of the Hon'ble Bombay High Court in the case of Continental Warehousing Corporation, which stated that the assessment under Section 153A cannot disturb the finalized assessment/reassessment unless materials gathered during the proceedings establish that the reliefs granted were contrary to the facts unearthed during the course of 153A proceedings.

The Tribunal also referred to the Hon'ble High Court of Delhi in the case of Kabul Chawla, which summarized the legal position that completed assessments can be interfered with by the AO under Section 153A only on the basis of some incriminating material unearthed during the search. Since the disallowances/additions made in the assessments were devoid of any incriminating material found at the time of the search, the Tribunal quashed the assessment years for A.Y. 2001-02 & 2002-03.

2. Disallowance of Expenditure and Denial of Losses:
The common grievance in the appeals for A.Y. 2003-04 to 2007-08 was the disallowance of expenditure and thereby denying the losses incurred by the assessee towards the sale of milk and pasupalan. The AO disallowed the excess expenditure claimed by the assessee over and above his income, stating that the expenditures were not supported by any documentary evidence. The AO restricted the expenditure only to the extent of income shown by the assessee from pasupalan and milk sale.

The Tribunal noted that once the AO has accepted the income from pasupalan and milk sale, it cannot be said that the assessee has not incurred any expenditure. The Tribunal found that the expenditures claimed by the assessee were not unreasonable and directed the AO to allow the expenditure claimed by the assessee as per his computation of income.

3. Additions Made on Account of Alleged Rental Income:
The AO made additions on account of rental income, alleging that the assessee earned such income by letting out his premises for bakery business. A survey action under Section 133A revealed that a bakery was running at the stud farm house of the assessee, and statements recorded indicated that rent was being paid for the bakery premises. The assessee objected, stating that the rental income was received by Shri Harshadbhai Barot, not the assessee.

The Tribunal found that the affidavit provided by Shri Harshadbhai Barot was not legally valid and lacked verification. The Tribunal held that the rental income belonged to the assessee, as the stud farm house was owned by the assessee, and confirmed the findings of the First Appellate Authority, thereby dismissing the grievance of the assessee regarding the rental income.

Conclusion:
The Tribunal quashed the assessments for A.Y. 2001-02 & 2002-03 due to the lack of incriminating material found during the search. The Tribunal directed the AO to allow the expenditure claimed by the assessee for A.Y. 2003-04 to 2007-08, finding the expenditures reasonable. The Tribunal upheld the addition of rental income in the hands of the assessee, confirming the findings of the lower authorities. The appeals were partly allowed.

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