2019 (4) TMI 1220 - AT - Income Tax

Addition of unexplained expenditure u/s 69C - no incriminating material found in search and seizure - advertisement expenses - disallowance u/s 14A - additional ground filed by the assessee challenging additions made u/s 153A as bad in law as the same were not made on the basis of incriminating material found during the course of search - HELD THAT - Since, in the instant case also, a bare perusal of the assessment order shows that there is no mention of any incriminating material found during the course of search with respect to unexplained advertisement expenses or expenditure for earning tax free dividend income, therefore, in absence of any incriminating material found during the course of search, no addition on account of bogus advertisement expenses or disallowance u/s 14A r.w. Rule 8D can be made. In view of the decision of the coordinate Bench of the Tribunal in assessee s own case 2019 (3) TMI 1023 - ITAT DELHI , we allow the legal ground raised by the assessee under Rule 27 of the ITAT Rules, 1963 and decide the same in favour of the assessee. Since the assessee succeeds on the legal ground, therefore, the appeal filed by the Revenue is dismissed. Disallowance u/s 14A - no exempt income - HELD THAT - Since it is an admitted fact that no exempt income has been received by the assessee during the year, therefore, in view of the latest decision of the Hon'ble Supreme Court in the case of PCIT vs. Oil Industry Development Board of India 2019 (3) TMI 1571 - SUPREME COURT OF INDIA , where it has been held that in absence of any exempt income, no disallowance u/s 14A r.w. Rule 8D is permissible, no disallowance u/s 14A r.w. Rule 8D is called for.

Summary

Issues Involved:
1. Addition on account of bogus advertisement expenses.
2. Addition on account of bogus purchases.
3. Disallowance under Section 14A read with Rule 8D.
4. Admissibility of additional grounds raised by the assessee.

Detailed Analysis:

1. Addition on Account of Bogus Advertisement Expenses:
The Assessing Officer (A.O.) observed during the search operations that the assessee group booked substantial expenses under the head 'Advertisement expenses,' which appeared to be non-genuine. Consequently, the A.O. made an addition of ?44,20,848/- for the assessment year 2006-07 and ?50,18,858/- for the assessment year 2007-08, treating these expenses as unexplained expenditure under Section 69C of the IT Act. However, the Commissioner of Income Tax (Appeals) [CIT(A)] deleted these additions, following his order for the assessment year 2008-09. The Tribunal upheld the CIT(A)'s decision, noting that no incriminating material was found during the search to justify these additions.

2. Addition on Account of Bogus Purchases:
The A.O. noted discrepancies in the transactions (purchase of sugar) with M/s Bajaj Hindustan Ltd. and inferred that the purchases shown by the assessee amounting to ?1,68,80,000/- for the assessment year 2006-07 and ?16,28,80,000/- for the assessment year 2007-08 were bogus. However, the CIT(A) deleted these additions based on the remand report of the A.O., and the Revenue did not appeal against this deletion. Therefore, this issue was not contested further.

3. Disallowance under Section 14A read with Rule 8D:
The A.O. made a disallowance of ?12,58,73,774/- under Section 14A read with Rule 8D for the assessment year 2006-07, which was subsequently reduced to ?65,49,093/- under Section 154 of the IT Act. The CIT(A) directed the A.O. to disallow only ?13,57,488/- (0.5% of the average investment) and deleted the balance amount. For the assessment year 2007-08, the CIT(A) sustained ?9,86,091/- and deleted the rest. The Tribunal upheld the CIT(A)'s decision, citing the absence of any exempt income received by the assessee during the year, in line with the Supreme Court's decision in the case of PCIT vs. Oil Industry Development Board of India.

4. Admissibility of Additional Grounds Raised by the Assessee:
The assessee raised a legal ground under Rule 27 of the ITAT Rules, arguing that the additions made under Section 153A were not based on incriminating material found during the search. The Tribunal, following its earlier decision in the assessee's own case for the assessment years 2008-09 to 2010-11 and the Delhi High Court's decision in CIT vs. Kabul Chawla, upheld this ground. It ruled that completed assessments could only be interfered with based on incriminating material unearthed during the search, which was not the case here. Consequently, the Tribunal dismissed the Revenue's appeals and allowed the assessee's cross-objections.

Conclusion:
The Tribunal dismissed the Revenue's appeals for both assessment years and allowed the assessee's cross-objections, emphasizing the lack of incriminating material found during the search to justify the additions made by the A.O. under Sections 69C and 14A read with Rule 8D.