2020 (3) TMI 574 - AT - Income Tax

Assessment u/s 153A - Addition u/s 68 - HELD THAT - As the facts and circumstances in the case of present assessee with same A.Y.2010-11 are same, respectfully following the order of the Co-ordinate Bench, we do not find any merit for the addition so made on account of share capital and the alleged commission paid for obtaining the same. Addition u/s 14A -While framing assessment U/s 153A r.w.s 143(3) of the Act. The A.O. has made disallowance U/s 14A - However, no incriminating material was referred by the A.O. while making addition U/s 14A of the Act. This issue has also been dealt with by the Tribunal kin the group cases as stated above and after observing that in absence of any incriminating material, no addition can be made in respect of the assessment which become final and no proceeding is pending as on the date of search. In the Tribunal order also as stated above, search was also taken on 24/09/2013 and with reference to the very same search, the A.O. as made disallowance U/s 14A of the Act. As the facts and circumstances during the year under consideration are same, respectfully following the order of the Tribunal in the group case, we do not find any merit for the addition made u/s.14A of the IT Act. Appeal of the assessee is allowed.

Summary

Issues Involved:
1. Validity of additions made under section 143(3) read with section 153A of the Income Tax Act, 1961.
2. Addition of ?22,10,000 under section 68 of the Income Tax Act.
3. Addition of ?16,575 as unexplained expenditure.
4. Disallowance under section 14A read with Rule 8D of the IT Rules, 1962.
5. Alleged violation of principles of natural justice.

Issue-wise Detailed Analysis:

1. Validity of Additions under Section 143(3) read with Section 153A:
The Tribunal examined the validity of the additions made under section 143(3) read with section 153A of the Income Tax Act, 1961. The search and seizure action under section 132(1) was conducted on the Anand Rathi Group on 24/09/2013. The AO added ?22,10,000 under section 68 and ?16,575 as unexplained expenditure. The Tribunal referred to the order in the case of other group concerns of Anand Rathi Group, where similar additions were deleted. The Tribunal found that the AO did not conduct further investigations such as issuing summons under section 131, and the additions were not supported by incriminating material found during the search.

2. Addition of ?22,10,000 under Section 68:
The Tribunal reviewed whether the assessee had discharged its onus under section 68 by proving the identity, genuineness of transactions, and creditworthiness of the parties. The assessee provided various documents, including share application forms, board resolutions, bank statements, PAN cards, and financial statements. The Tribunal noted that the AO did not conduct further investigations after issuing notices under section 133(6). The Tribunal held that the AO's reliance on third-party statements without providing an opportunity for cross-examination violated principles of natural justice. The Tribunal cited several case laws, including CIT vs. Lovely Exports Pvt Ltd, to support its decision to delete the addition.

3. Addition of ?16,575 as Unexplained Expenditure:
The Tribunal found that since the addition of ?22,10,000 under section 68 was deleted, the consequent addition of ?16,575 as unexplained expenditure was also incorrect. The Tribunal directed the AO to delete this addition.

4. Disallowance under Section 14A read with Rule 8D:
The AO made a disallowance of ?28,114 under section 14A read with Rule 8D. The Tribunal observed that the disallowance was made without reference to any incriminating material found during the search. The Tribunal referred to the decision of the Bombay High Court in CIT vs. Continental Warehousing Corporation, which held that in the absence of incriminating material, no additions could be made in assessments framed under section 153A. The Tribunal concluded that the AO erred in making the disallowance and directed its deletion.

5. Alleged Violation of Principles of Natural Justice:
The Tribunal noted that the AO relied on third-party statements to make additions but did not provide the assessee with copies of these statements or an opportunity for cross-examination. This was deemed a violation of the principles of natural justice. The Tribunal emphasized that reliance on third-party information requires providing the assessee with an opportunity to cross-examine the person who made the statement, as supported by the Supreme Court's decision in Kishanchand Chellaram vs. CIT.

Conclusion:
The Tribunal allowed the appeal of the assessee, deleting the additions made under section 68 and section 14A, and the consequent unexplained expenditure. The Tribunal emphasized the importance of proper investigation and adherence to principles of natural justice in tax assessments.