2019 (4) TMI 287 - AT - Income Tax

Assessments u/s 153A r.w.s. 143(3) - addition of advertisement expenses based on post-search investigation - CIT(A) deleted addition based on earlier year order - disallowance u/s 14A - HELD THAT - Since in A.Y. 2007-2008, admittedly, the departmental appeal have been dismissed by the Tribunal on account of low tax effect, therefore, the same requires readjudication at the level of the CIT(A). We, accordingly, set aside the Orders of the authorities below and restore this issue to the file of CIT(A) with a direction to redecide this ground on merits giving reasons for decision in the same, by giving reasonable, sufficient opportunity of being heard to the assessee and A.O. Admission of additional ground - addition is not permissible if no incriminating material found - HELD THAT - we are of the view that additional ground raised in all the matters are legal in nature and there is no need to investigate into fresh facts, therefore, additional ground shall have to be admitted. Since the additional ground raised for the first time and have not been adjudicated in two years by the authority below, therefore, the same requires consideration at the level of the Ld. CIT(A). We, accordingly, set aside the orders of the authorities below and restore the additional ground to the file of Ld. CIT(A) with a direction to decide this additional ground as per law, by giving reasonable and sufficient opportunity of being heard to the assessee and A.O. in all the three years. Disallowance u/s 14A - HELD THAT - We find from the impugned order that assessee has merely submitted before CIT(A) that he has not earned any substantive exempt income, on which, no finding of fact have been recorded by the CIT(A) as well. It is well settled law that if the assessee did not earn any exempt income, no disallowance under section 14A could be made. We rely upon the Judgment in the case of Cheminvest Ltd. 2015 (9) TMI 238 - DELHI HIGH COURT . No finding of fact have been recorded by the CIT(A) on the same. Therefore, this issue also requires re-consideration at the level of the CIT(A) - since we have admitted additional ground which is purely legal in nature and directed the CIT(A) to decide the same as per Law, therefore, the issue on merit shall have to be decided after deciding the legal issue which would have bearing on the assessment of income of assessee as per law. In case assessee succeeds on legal ground, perhaps, there may not be any need to decide grounds on merits. Set aside the Orders of the authorities below and restore the matter in issue to the file of CIT(A) to decide the issues afresh as is directed above, therefore, this issue is also restored to CIT(A) with a direction to decide this issue afresh, by giving reasonable, sufficient opportunity of being heard to the assessee and A.O.

Summary

Issues Involved:
1. Addition on account of unexplained advertisement expenses.
2. Addition under section 14A read with Rule 8D of the Income Tax Act.
3. Legal admissibility of additions made under section 153A without incriminating material.

Detailed Analysis:

1. Addition on Account of Unexplained Advertisement Expenses:
The Assessing Officer (A.O.) noted that during a search and seizure operation under section 132 of the Income Tax Act, substantial expenses under "Advertisement Expenses" were booked by the assessee, which appeared to be non-genuine. The A.O. made additions in various assessment years (A.Y. 2008-2009, 2009-2010, and 2010-2011) based on the lack of response to notices and insufficient details provided by the assessee.

The Commissioner of Income Tax (Appeals) [CIT(A)], however, deleted these additions by following the order for A.Y. 2007-2008, where similar additions were deleted. The Tribunal noted that the CIT(A) did not consider the A.O.'s findings and merely followed the previous year's order without addressing the specific issues raised by the A.O.

The Tribunal set aside the CIT(A)'s order and directed a re-evaluation of the advertisement expenses, instructing the CIT(A) to give detailed reasons for the decision and provide a reasonable opportunity for both the assessee and A.O. to be heard.

2. Addition Under Section 14A Read with Rule 8D:
The A.O. made significant additions under section 14A read with Rule 8D, considering that certain expenses were related to earning exempt income. The CIT(A) deleted these additions, again following the order for A.Y. 2007-2008. The Tribunal observed that the CIT(A) did not record any specific findings of fact regarding whether the assessee earned any exempt income.

The Tribunal emphasized that as per the judgment of the Hon'ble Delhi High Court in Cheminvest Ltd. (378 ITR 33), no disallowance under section 14A can be made if no exempt income is earned. The Tribunal directed the CIT(A) to reconsider this issue, record specific findings, and provide an opportunity for both parties to be heard.

3. Legal Admissibility of Additions Under Section 153A:
The assessee raised a legal ground, contending that additions made under section 153A were invalid as they were not based on incriminating material found during the search. The Tribunal admitted this additional ground, citing the judgment of the Hon'ble Delhi High Court in CIT vs. Kabul Chawla (380 ITR 573), which states that completed assessments can only be interfered with based on incriminating material unearthed during the search.

The Tribunal set aside the orders of the authorities below and restored the additional ground to the CIT(A) for fresh consideration, directing the CIT(A) to decide this legal issue first, as it could impact the assessment of income. The Tribunal instructed the CIT(A) to provide reasonable and sufficient opportunity for both the assessee and A.O. to present their cases.

Conclusion:
The Tribunal allowed the Departmental Appeals and Cross Objections for statistical purposes, setting aside the orders of the authorities below and restoring the matters to the CIT(A) for fresh adjudication on all the issues, ensuring that detailed reasons are provided and both parties are given a fair opportunity to be heard.