2019 (8) TMI 561 - AT - Income Tax

Assessment u/s 153A - Addition of interest income - HELD THAT - Assessing officer is not without recourse to bring this interest income to tax. The reason for the same is that there is no dispute that the assessee has earned this interest income and there is also no dispute that the same has not been offered to tax by the assessee for the impugned assessment year. Therefore, in a scenario, where during the course of reassessment proceedings u/s 153A, the Assessing officer is ceased of the material and information that the income has escaped taxation, such material and information can form the basis for initiating the reassessment proceedings u/s 147 the same time, the contentions which has been raised by the ld AR, that the assessee has reported the interest income at the time of maturity of the fixed deposits and on receipt of income tax refund in subsequent assessment year and therefore, the action of the AO has resulted in double taxation which cannot be sustained in the eyes of the law, has to be considered and examined objectively as the law permits the assessee to report interest income under the head Income from other sources either on the cash or mercantile basis which is regularly employed by the assessee. Where the assessee contends that it has offered the interest income on maturity of fixed deposits and on receipt of income tax refund, basically, the assessee has followed the cash basis of accounting which is permissible under law. In the scenario, where it is found on examination that the interest income has not been reported to tax as so claimed by the assessee even in the subsequent assessment year, the Assessing officer will be at liberty to take action as per law to bring such interest income to tax. Under the present proceedings which has been initiated u/s 153A, given that the original proceedings were not abated as on the date of search and in absence of any incriminating material found during the course of search, no addition can be made in the hands of the assessee and the same is hereby directed to be deleted. - Decided in favour of assessee.

Issues:
Appeal against orders of ld. CIT(A) for Assessment Years 2010-11 & 2012-13, addition outside section 153A, unrecorded income u/s 56, consideration of explanations, deletion of addition, judicial decisions' applicability.

Analysis:

Issue 1: Addition outside Section 153A
The assessee contested the addition of interest income outside the scope of section 153A, citing lack of incriminating material during the search. The argument relied on judicial precedents, including the Rajasthan High Court's decision in Pr. CIT vs. Smt. Daksha Jain, emphasizing the need for fresh material for additions under section 153A. The contention was that the Assessing Officer lacked powers as in the original assessment under section 143(3) and could only add income based on incriminating material found during the search. The Tribunal agreed, highlighting that no incriminating material was found during the search, and the Assessing Officer's knowledge of interest income was based on a review of Form 26AS during reassessment proceedings. Therefore, the addition was held to be impermissible under section 153A.

Issue 2: Unrecorded Income u/s 56
The Assessing Officer had added unrecorded interest income of ?2,14,211 under section 56, which the CIT(A) confirmed. However, the Tribunal noted that the original proceedings were not pending as of the search date, making it a case of reassessment. As no incriminating material was found during the search, the addition was deemed unjustified under section 153A. The Tribunal emphasized that the Assessing Officer could take action under section 147 if the interest income had indeed escaped taxation, based on information discovered during reassessment proceedings.

Issue 3: Consideration of Explanations
The assessee's explanations regarding the interest income, reported at maturity of fixed deposits and income tax refund, were examined. The Tribunal acknowledged the permissibility of reporting interest income under 'Income from other sources' on a cash basis. The Assessing Officer was advised to investigate if the interest income had not been reported even in subsequent assessment years, allowing appropriate action under the law.

Issue 4: Deletion of Addition
Given the absence of incriminating material during the search and the lack of pending original proceedings, the Tribunal directed the deletion of the interest income addition. The Tribunal clarified that while the Assessing Officer could take action under section 147 based on new information, the current section 153A proceedings did not warrant the addition.

Issue 5: Applicability of Judicial Decisions
The Tribunal extensively referenced judicial decisions, including those of the Rajasthan High Court and Co-ordinate Bench, to support the conclusion that additions under section 153A require incriminating material. The Tribunal emphasized the importance of legal provisions and precedents in determining the validity of additions in reassessment proceedings.

Conclusion:
Both appeals by the assessee were allowed, with the Tribunal directing the deletion of the interest income addition due to the absence of incriminating material during the search and the impermissibility of such additions under section 153A without fresh evidence. The Tribunal highlighted the Assessing Officer's recourse under section 147 based on new information, ensuring compliance with legal provisions and judicial decisions.

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