2017 (4) TMI 177 - AT - Income Tax

Additions towards notional interest on interest free advances given out of interest bearing funds - A.O. jurisdiction to make additions in respect of concluded assessments - Held that - In this case, search was taken place on 9.1.2009. As on the date of search, the assessment for the assessment years 2005-06 to 2007-08 were already concluded and there are no proceedings pending for those assessment years. The time limit for issue of notice u/s 143(2) of the Act, for the assessment years 2005-06 to 2007-08 has been expired. The A.O. made additions towards notional interest on interest free advances given to sister concerns without any incriminating materials and based on the books of accounts and financial statements, which were already part of regular return of income filed by the assessee u/s 139(1) of the Act for those assessment years. Therefore, we are of the view that the A.O. has no jurisdiction to make additions in respect of concluded assessments in the absence of any incriminating materials. Hence, we direct the A.O. to delete additions towards notional interest on interest free advances given to sister concerns for the A.Y. 2005-06 to 2007-08. - Decided in favour of assessee

Summary

Issues Involved:
1. Jurisdiction of the Assessing Officer (A.O.) to make additions in concluded assessments without incriminating material.
2. Addition of notional interest on interest-free advances given to sister concerns.

Detailed Analysis:

1. Jurisdiction of the A.O. to Make Additions in Concluded Assessments Without Incriminating Material:

The primary issue in these appeals was whether the A.O. had the jurisdiction to make additions towards notional interest on interest-free advances given to sister concerns for the assessment years 2005-06 to 2007-08, where the assessment proceedings had been concluded and no proceedings were pending as of the date of the search.

The Tribunal noted that the search and seizure operation under Section 132 of the Income Tax Act was conducted on 9.1.2009. The assessments for the years 2005-06 to 2007-08 were already concluded, and there were no pending proceedings for these years as of the search date. The A.O. issued notices under Sections 143(2) and 142(1) and made additions based on the books of accounts and financial statements, which were part of the regular return of income filed by the assessee under Section 139(1).

The Tribunal referenced the decision of the ITAT, Visakhapatnam bench in the case of L. Suryakantham Vs. ACIT, which held that the A.O. has no jurisdiction to make additions in the assessment under Section 153A for the assessments which are not pending as of the date of search unless there is incriminating material found during the search. The Tribunal also cited several other cases, including the ITAT Special Bench decision in All Cargo Global Logistics Ltd. Vs. DCIT, which supported the view that in the case of concluded assessments, the A.O. can only make additions based on incriminating material found during the search.

The Tribunal concluded that since the assessments for the years 2005-06 to 2007-08 were concluded and no incriminating material was found during the search, the A.O. had no jurisdiction to make additions towards notional interest. Consequently, the Tribunal directed the A.O. to delete the additions made for these years.

2. Addition of Notional Interest on Interest-Free Advances Given to Sister Concerns:

The second issue was the addition of notional interest on interest-free advances given to sister concerns. The assessee contended that the advances were made out of its own funds and not from interest-bearing funds, and hence, the A.O. was incorrect in making the addition towards notional interest.

However, since the Tribunal had already decided that the A.O. had no jurisdiction to make any additions in respect of concluded assessments in the absence of incriminating materials, the issue of notional interest on its merits became academic and did not require further adjudication.

Conclusion:

The Tribunal allowed the appeals filed by the assessee for the assessment years 2005-06, 2006-07, and 2007-08, directing the A.O. to delete the additions towards notional interest on interest-free advances given to sister concerns. The Tribunal emphasized that the A.O. lacked jurisdiction to make such additions in the absence of incriminating material for the concluded assessments.