2017 (10) TMI 592 - AT - Income Tax

Assessment made u/s 143(3) r.w.s. 153A - proof of incriminating material being seized/ found during the course of search - Held that - It is the settled law that in a case of non-abated assessment addition can be made in the assessment completed under section 143(3) r.w.s. 153A on the basis of the material found/seized during the course of the search. So far the additions in respect disallowance of PF, ESIC, 5% of the expenses disallowed under section 35D and disallowance for depreciation on actual brand value we noted that the disallowances have been made by the AO in the respective assessment years without bringing out any seized material during the course of assessment proceedings. In view of above we are bound to follow we hold that these additions in each of the assessment years are made by the AO beyond his jurisdiction. We, therefore, delete all these additions in each of the assessment years. Additions in respect of disallowances on account of commission on purchases and sales - disallowances were made by the AO on the basis of the statement of Shri Murarilal Agarwal who is one of the Directors of the company recorded under section 132(4) - Held that - The issue involved is duly covered by the decision of the Hon ble Kerala High Court in the case of CIT vs. St. Francis Clay Decor Tiles 2016 (6) TMI 378 - KERALA HIGH COURT wherein held that the statement recorded during the course of search is a valuable piece of evidence while interpreting the phraseology incriminating is used by the Parliament. They have also clarified that neither under section 132 or under section 153A the phraseology incriminating is used by the Parliament. Since the Hon ble Kerala High Court has taken the recorded statement as a valuable piece of evidence and no contrary evidence was brought to our notice by the learned A.R. we, therefore, during the A.Y. 2007-08 upheld the addition of ₹ 9,57,372/- incurred by way of commission on purchases and ₹ 9,57,372/- incurred by way of commission on sales

Summary

Issues Involved:
1. Condonation of delay in filing appeals.
2. Legality of additions made under section 143(3) read with section 153A without incriminating material.
3. Validity of disallowances and additions made by the Assessing Officer (AO).
4. Appeals filed by the Revenue regarding deletions by CIT(A).

Detailed Analysis:

1. Condonation of Delay:
The appeals for assessment years 2004-05 and 2005-06 were barred by a delay of 114 days. The assessee filed an application for condonation of delay, which was supported by an affidavit. After reviewing the submissions, the Tribunal noted that the delay was due to sufficient cause and condoned the delay.

2. Legality of Additions under Section 143(3) read with Section 153A:
The common legal ground raised by the assessee was that the Commissioner of Income Tax (Appeals) [CIT(A)] erred in confirming the AO's additions in the absence of any incriminating material found during the search. The Tribunal noted that the assessments for the years 2004-05 to 2007-08 were completed before the search and were thus not pending at the time of the search. According to the proviso to section 153A, these assessments remain unabated. The Tribunal referred to the Special Bench decision in All Cargo Global Logistics Ltd. vs. DCIT and the Jurisdictional High Court decision in CIT vs. Continental Warehousing Corporation Ltd., which held that additions in non-abated assessments could only be made based on incriminating material found during the search.

3. Validity of Disallowances and Additions:
The Tribunal examined the specific disallowances and additions made by the AO:
- Assessment Year 2004-05: Additions for ESIC and 5% of expenses disallowed.
- Assessment Year 2005-06: Additions for PF & ESIC and 5% of expenses disallowed.
- Assessment Year 2006-07: Additions for PF & ESIC, disallowances under sections 35D and 35DD, 5% of expenses disallowed, and depreciation on goodwill and brand value.
- Assessment Year 2007-08: Additions for PF & ESIC, disallowances under sections 35D and 35DD, 5% of expenses disallowed, depreciation on goodwill and brand value, and commissions on purchases and sales.

The Tribunal found that these disallowances were made without any incriminating material found during the search, except for the commissions on purchases and sales in 2007-08, which were based on a statement recorded under section 132(4). The Tribunal upheld the additions for commissions based on the Kerala High Court decision in CIT vs. St. Francis Clay Decor Tiles, which considered such statements as valuable evidence.

4. Appeals by the Revenue:
The Revenue challenged the deletions by CIT(A) regarding depreciation on brand value and goodwill and the restriction of disallowance to 2% of expenses instead of 5%. The Tribunal held that these additions were not based on any material found during the search and thus could not be made in non-abated assessments, following the Jurisdictional High Court decision.

Conclusion:
The Tribunal allowed the appeals filed by the assessee for assessment years 2004-05, 2005-06, and 2006-07, and partly allowed the appeal for 2007-08. The appeals filed by the Revenue were dismissed. The order was pronounced on 10th October 2017.