2017 (5) TMI 420 - AT - Income Tax

Validity of assessment u/s 153A - time limit for issue of notice u/s 143(2) expired - additions made towards disallowance of interest and deemed dividend u/s 2(22)(e) - Held that - The time limit for issue of notice u/s 143(2) of the Act has been expired. The A.O. has made additions towards disallowance of interest and on account of deemed dividend without any incriminating materials. Therefore, we are of the view that the A.O. has no jurisdiction to make additions for the assessment years 2003-04, 2005-06, 2006-07 & 2008-09, in the absence of any incriminating materials. We further observed that the A.O. has made additions towards disallowance of interest and on account of deemed dividend based on the books of accounts and financial statements, which were already part of regular return filed by the assessee u/s 139(1) of the Act, but not based on any incriminating materials unearthed during the course of search - Decided against revenue Additions towards inflation of expenditure - Held that - We do not find any merits in the arguments of the assessee, for the reason that the assessee himself had admitted inflation of hostel expenditure mainly with regard to the purchase of vegetables and other provisions. We further observed that the expenditure incurred towards purchase of vegetables and other provisions is supported by self-made vouchers and did not have proper evidence to prove the veracity of the expenditure, therefore, we are of the view that the A.O. was right in disallowing inflation of expenditure. The CIT(A) after considering the relevant explanations of the assessee has rightly upheld additions made by the A.O. We do not find any error in the order of the CIT(A). - Decided against assessee. Additions towards unexplained deposit in the bank account - Held that - In the absence of any specific finding as to utilization of source available in the form of additional income out of inflation of expenditure, the A.O. ought to have telescoped the sources available towards additions made towards unexplained cash deposits in the bank account in the name of the employees. The CIT(A) without appreciating the facts, simply upheld additions made by the A.O. Therefore, we direct the A.O. to allow the benefit of telescope towards additional income available in the form of inflation of expenditure. In so far as unexplained investment in purchase of site, the assessee himself admitted that the said investment is outside the books of accounts. However, claims that the sources of income available in the form of additional income offered towards inflation of expenditure should be telescoped towards additions made on account of unexplained investment in purchase of site. Therefore, we direct the A.O. to allow benefit of telescoping on additional income offered towards inflation of expenditure to unexplained investment in purchase of site. Additions towards suppression of receipts - Held that - A.O. has made additions solely on the basis of MIS report sent from branch office to head office which was found and seized during the course of search operations. We further observed that the additions made by the A.O. is not supported by valid evidences, except internal MIS report sent from branch office to head office for their accounting purposes. The assessee, on the other hand, categorically proved that the books of accounts has been prepared based on the actual receipt of fees collections as per which the fees receivable at the end of the financial year is at ₹ 10,62,000/- but not ₹ 15,78,750/-, thus there is no difference in fees collection. The A.O. without appreciating facts, simply made additions towards suppression of receipts. Therefore, we direct the A.O. to delete additions made towards suppression of receipts.- Decided against revenue Additions towards deemed dividend u/s 2(22)(e) - Held that - the transaction between the assessee and his company is not a gratuitous payment, which falls under the ambit of deemed dividend u/s 2(22)(e) of the Act. Therefore, we direct the A.O. to delete additions made towards deemed dividend. - Decided against revenue

Summary

Issues Involved:
1. Jurisdiction of the Assessing Officer (A.O.) to make additions under section 153A of the Income Tax Act, 1961, in the absence of incriminating material.
2. Disallowance of interest and deemed dividend under section 2(22)(e) of the Act.
3. Additions towards inflation of expenditure.
4. Additions towards unexplained deposits in bank accounts.
5. Additions towards unexplained investment in the purchase of a site.
6. Additions towards suppression of receipts.
7. Additions towards deemed dividend for the assessment year 2009-10.

Detailed Analysis:

1. Jurisdiction of the A.O. to Make Additions under Section 153A:
The core issue was whether the A.O. could make additions for assessment years where the assessment proceedings had concluded without the presence of any incriminating material found during the search. The Tribunal observed that the A.O. has no jurisdiction to make additions for completed assessments unless there is incriminating material found during the search. This was supported by the decision in the case of All Cargo Global Logistics Ltd. Vs. DCIT, which stated that additions can only be made based on incriminating material found during the search. Consequently, the Tribunal upheld the CIT(A)'s order deleting the additions made by the A.O. for the assessment years 2003-04, 2005-06, 2006-07, and 2008-09.

2. Disallowance of Interest and Deemed Dividend under Section 2(22)(e):
The Tribunal found that the A.O. made additions towards disallowance of interest and deemed dividend based on the financial statements filed by the assessee, without any incriminating material. As such, these additions were not sustainable. The CIT(A)'s decision to delete these additions was upheld.

3. Additions Towards Inflation of Expenditure:
The A.O. disallowed a sum towards inflation of expenditure, which was admitted by the assessee during the search proceedings. The Tribunal found that the expenditure was supported by self-made vouchers and lacked proper evidence. Therefore, the A.O.'s disallowance was upheld, and the CIT(A)'s order confirming this addition was also upheld.

4. Additions Towards Unexplained Deposits in Bank Accounts:
The A.O. made additions based on incriminating materials found during the search, indicating unexplained deposits in the names of employees. The Tribunal found merit in the assessee's argument for telescoping the unexplained deposits with the additional income admitted due to inflation of expenditure. The Tribunal directed the A.O. to allow the benefit of telescoping.

5. Additions Towards Unexplained Investment in Purchase of Site:
The assessee admitted that the investment in the purchase of the site was outside the books of accounts. The Tribunal directed the A.O. to allow the benefit of telescoping the additional income offered towards inflation of expenditure to the unexplained investment in the purchase of the site.

6. Additions Towards Suppression of Receipts:
The A.O. made additions based on the difference between the MIS report and the books of accounts. The Tribunal found that the A.O.'s additions were not supported by valid evidence and were solely based on the MIS report. The Tribunal directed the A.O. to delete the additions made towards suppression of receipts.

7. Additions Towards Deemed Dividend for the Assessment Year 2009-10:
The A.O. added a loan received by the assessee from a company as deemed dividend under section 2(22)(e). The Tribunal found that the loan was a short-term arrangement and was repaid in the normal course of business. The transaction was mutually beneficial, as the assessee had provided personal properties as collateral for the company's loans. The Tribunal held that the loan did not fall under the ambit of deemed dividend and directed the A.O. to delete the addition.

Conclusion:
The Tribunal upheld the CIT(A)'s order in most respects, emphasizing the necessity of incriminating material for making additions under section 153A for completed assessments. The Tribunal allowed the benefit of telescoping for unexplained deposits and investments and deleted the additions for suppression of receipts and deemed dividend. The appeals filed by the revenue were dismissed, and the appeals filed by the assessee were allowed.