2018 (8) TMI 1313 - AT - Income Tax

Protective assessment u/s 143(3) r.w.s 153C - ITAT cancelled the protective assessment holding that once substantial assessment is made, protective assessment has no legs to stand - purchase of gold and diamonds. - Held that - In the instant case the AO has not made any addition on the basis of incriminating material belonging to the assessee, found from the searched person u/s 132 of the Act. The addition was made on the basis of entries in the regular books accounts revisiting the same. Therefore, facts of the case are squarely covered by the decision of this tribunal in the case of Lalitha Devi 2018 (4) TMI 337 - ITAT VISAKHAPATNAM and the decision of Hon ble Supreme court in the case cited. The notice issued u/s 153C without jurisdiction and is invalid. Thus the consequent additions made in the order is beyond the scope of section 143(3) r.w.s. 153C and are unsustainable. Further, since the AO has made the addition substantively in the hands of HUF, in the year 2009-10 and there was no ambiguity in the mind of the assessing officer with regard to the beneficiary, there is no case for making the protective assessment. Protective assessment is made when there is ambiguity with regard to the actual beneficiary. - having made addition substantively in the hands of HUF, the addition made on protective basis required to be deleted. - Decided against the revenue. Depreciation of windmill and computation of short term capital gains on sale of windmill - Held that - the sale consideration of wind mill require to be bifurcated towards the land and the windmill but not the wind mill alone. The revenue during the appeal hearing did not place any material to controvert the finding given by the Ld.CIT(A).The AO has not disputed the basis for apportioning of sale price towards the land cost on the basis of indexed cost of acquisition. - The assessee has not claimed any depreciation on the land, therefore we hold that assessee has rightly allocated the sale consideration towards the windmill and the land and did not commit any error in deducting the indexed cost of land from the sale consideration of the wind mill and offering the balance amount towards the sale price of wind mill. - Decided against the revenue. Income from house property - AO observed that assesse has suppressed the receipt toward rental income - Held that - Having credited the rent to the books of accounts and shown as debit balance, the assessee cannot deny the same for admission of income. In case, the rent is not realised, the assessee is free to claim the same as deduction as and when the same was written off as per law. The assesse also did not furnish any confirmation letter from the lessee to support the rent due - Additions confirmed - Decided against the assessee.

Issues Involved:
1. Cancellation of protective assessment.
2. Validity of assessment under Section 153C.
3. Short term capital gains on sale of windmill.
4. Admission of rent from Jukaso Hotel.
5. Disallowance of expenditure related to advance paid for premises.
6. Disallowance of expenditure related to exempt income under Section 14A.
7. Addition of unexplained credits under Section 68.
8. Corporate social responsibility expenditure under Section 37.

Detailed Analysis:

1. Cancellation of Protective Assessment:
The tribunal addressed the issue of protective assessment, noting that the substantial assessment had already been completed. The tribunal upheld the CIT(A)'s decision to cancel the protective assessment, stating, "once substantive assessment is made, protective assessment has no legs to stand."

2. Validity of Assessment under Section 153C:
The tribunal examined whether the notice issued under Section 153C was valid. It was found that the assessment for the year 2011-12 was completed under Section 143(3) and no incriminating material was found during the search relevant to that year. The tribunal referenced the Supreme Court's decision in CIT Vs. Sinhgad Technical Education Society, stating, "no notice u/s 153C can be issued in the case of completed assessments without having the incriminating material." Consequently, the tribunal held the notice issued under Section 153C as invalid and deleted the addition of ?12,00,02,396.

3. Short Term Capital Gains on Sale of Windmill:
The tribunal considered the allocation of sale consideration between land and the windmill. The CIT(A) had found that the assessee correctly classified the windmill under plant and machinery and the land separately in the fixed assets. The tribunal upheld this finding, stating, "the assessee rightly allocated the sale consideration towards indexed cost of land and has calculated the capital gain on sale of land and the windmill."

4. Admission of Rent from Jukaso Hotel:
The tribunal addressed the issue of unrealized rent from M/s Jukaso Hotels. The AO had added ?11,58,990, considering the rent as per the lease agreement. The tribunal upheld the CIT(A)'s decision, noting that the assessee had not provided evidence to support the claim that the premises were not handed over to the lessee as per the agreement.

5. Disallowance of Expenditure Related to Advance Paid for Premises:
The tribunal examined the disallowance of ?8,10,000 related to rental advance. The assessee failed to produce evidence to support the claim. The tribunal upheld the CIT(A)'s decision, stating, "in the absence of any evidence to establish the genuineness of the payment, nature of payment, reasons for payment, reasons for non-recovery of the advance, and the copy of lease agreement, we are unable to accept the claim of the assessee."

6. Disallowance of Expenditure Related to Exempt Income under Section 14A:
The tribunal considered the disallowance under Section 14A related to investments in the subsidiary company. It was found that the investments were made out of interest-free funds. The tribunal referenced the decision in CIT Vs. NHPC Ltd., stating, "investment in subsidiary companies out of interest-free funds does not attract the disallowance u/s 14A." The tribunal upheld the CIT(A)'s decision to delete the disallowance.

7. Addition of Unexplained Credits under Section 68:
The tribunal examined the addition of ?3,60,00,000 and ?37,50,000 as unexplained credits. The CIT(A) had verified the bank accounts and found that the credits were explained. The tribunal upheld this finding, stating, "the source was explained and addition made by the AO is unsustainable."

8. Corporate Social Responsibility Expenditure under Section 37:
The tribunal considered the disallowance of CSR expenditure. The CIT(A) had allowed part of the expenditure as business promotion and brand expansion. The tribunal upheld this decision, stating, "most of the expenditure was in the nature of the business promotion and brand expansion, partly related to corporate social responsibility."

Conclusion:
The tribunal dismissed the appeals of the revenue for the assessment years 2011-12, 2013-14, 2014-15, and 2015-16, and partly allowed the appeal of the assessee for the assessment year 2013-14, dismissed the appeal for the assessment year 2014-15, and allowed the appeal for the assessment year 2015-16.

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