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2017 (11) TMI 1369 - AT - Income TaxAssessment u/s 153A - Held that - Respectfully following the decision of the Hon‟ble Delhi High Court in case of CIT versus Kabul Chawla (2015 (9) TMI 80 - DELHI HIGH COURT) no addition can be made in the hands of the assessee for these and impugned assessment year in absence of any incriminating evidence as this assessment is concluded/completed assessment. Addition of bogus purchases - Held that - Assessing Officer has made this disallowance based on some Inquiry carried on by him in some other party which could not be found at the given address. It is stated that assessee has not purchased any goods from that party. In view of this we do not find any infirmity in the order of the Ld. CIT (A) in deleting the addition by holding that the appellant company has discharged its onus by providing copy of the bills raised by the contractor containing full address, nature of services rendered or goods supplied on payment has been made by account payee cheque and tax deduction at source has been deducted as per the provision of the law. He further held that the Assessing Officer is not conducted any enquiry to disbelieve these documents furnished by the assessee, but simply arrive at the conclusion that these expenses are not genuine. In view of this we find no infirmity in the order of the Ld. CIT (A) in deleting the above addition Addition u/s 14A - Held that - The assessee explained that assessee has invested a sum of ₹ 5.5 crore in fixed deposits received for which the loan was the source of the funds FDR was encashed on 11/01/2007 and invested in principle floating-rate mutual fund on which the assessee has received dividend. Therefore, with respect to this amount. There is a direct nexus of amount borrowed for the purpose of earning exempt income. Hence the interest were doubted in the table given at page No. 3 of the assessment order at serial No. 5 in investment in mutual fund was made from 1/11/2007, which was encased on 26/3/2007 for 5.5 crores and interest is working out thereon of rupees 1142945/ related to 74 days. In view of this, interest disallowance under rule 8D (2) (i) is required to be upheld. With respect to the other investment where the interest expenditure of ₹ 1 943289/ . There is no nexus of the sum borrowed with the amount of some invested in the mutual funds. The some of the interest amount is with respect to investment made by the assessee in sister Concern Company from which no dividend has been received. Even otherwise, looking to the balance sheet of the company assessee has share capital of rupees 278 lakhs and reserves and surplus of 1346 Lacs which makes the total shareholder‟s funds of rupees 1624 Lacs. The amount of investment made by the assessee is for 0 Lacs as on 31/3/2006 and only ₹ 7 lakhs as on 31/3/2007. Therefore it is apparent that the investment made by the assessee in exempt income generating investments is far less than interest-free funds available with the assessee. Addition on account of lease agreement charges - Held that - The expenditure is incurred by the assessee in present day business environment in different ways. It is for the revenue to first understand the business of the assessee and then decide about the allowability of the same by putting themselves into the shoes of businessmen. The business are being carried out in today‟s environment involved most volatile manner, it has also become innovative. Therefore, the time has come that revenue should also become contemporary with the running businesses and acquaint themselves with its volatility and innovativeness. Considering the business intent of the assessee and the manner of incurring expenditure, it is apparent that expenditure incurred by the assessee cannot be considered to be not business expenditure. According to us, it is for the purpose of the business of the assessee and hence deductible. For aforesaid reasons we reverse the finding of the lower authorities and direct the Ld. Assessing Officer to allow the claim of the assessee on account of lease agreement charges as deductible business expenditure under the head of profits and gains of business and profession.
Issues Involved:
1. Deletion of additions under Section 68 of the Income Tax Act. 2. Deletion of commission paid for obtaining accommodation entries. 3. Validity of assessment under Section 153A without incriminating evidence. 4. Disallowance of expenses under Section 14A. 5. Disallowance of expenses related to lease agreement charges and brokerage. Issue-wise Analysis: 1. Deletion of Additions under Section 68 of the Income Tax Act: The primary issue was whether the CIT(A) erred in deleting the addition of ?70,00,000/- made by the AO under Section 68. The AO treated amounts received from various companies as unexplained income, citing that these companies did not exist at the given addresses. The CIT(A) deleted the addition, relying on the Supreme Court decision in CIT Vs. Lovely Exports Pvt. Ltd., and noting that the assessee had provided sufficient evidence of the identity and creditworthiness of the contributors. The Tribunal upheld the CIT(A)'s decision, emphasizing that no incriminating material was found during the search to justify the addition. 2. Deletion of Commission Paid for Obtaining Accommodation Entries: The AO also added ?35,000/- as commission paid to obtain accommodation entries. The CIT(A) deleted this addition, and the Tribunal upheld this deletion, noting the lack of incriminating evidence found during the search. 3. Validity of Assessment under Section 153A without Incriminating Evidence: The Tribunal extensively discussed the legal framework under Section 153A, emphasizing that completed assessments can only be disturbed based on incriminating evidence found during the search. For assessment years where no such evidence was found, the Tribunal held that additions could not be made. This principle was applied across multiple assessment years (2002-03 to 2009-10), leading to the deletion of various additions made by the AO in the absence of incriminating material. 4. Disallowance of Expenses under Section 14A: The AO disallowed certain expenses under Section 14A, attributing them to the earning of exempt income. The CIT(A) deleted these disallowances, and the Tribunal upheld the deletions, noting that the AO failed to establish a direct nexus between the borrowed funds and the investments yielding exempt income. The Tribunal also considered the adequacy of the assessee's own funds to cover the investments. 5. Disallowance of Expenses Related to Lease Agreement Charges and Brokerage: The AO disallowed expenses related to lease agreement charges and brokerage, treating them as non-business expenses. The CIT(A) upheld these disallowances, but the Tribunal reversed this decision, recognizing the business rationale behind these expenses. The Tribunal accepted the assessee's argument that such expenses were incurred to enhance the marketability and value of the properties, thus qualifying as business expenses under Section 37(1). Conclusion: The Tribunal's judgment extensively analyzed the issues related to additions under Section 68, the validity of assessments under Section 153A, and the disallowance of expenses under Sections 14A and 37(1). The Tribunal consistently emphasized the necessity of incriminating evidence for making additions in completed assessments and recognized the business rationale behind certain expenses, ultimately providing relief to the assessee.
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