2022 (5) TMI 152 - AT - Income Tax

Assessment u/s 153A pursuant to search - Additional income as offered before settlement commission - subsequent to search action assessee has disclosed additional income before ITSC - AO observed that Assessing Officer he is entitled to use all the material filed before ITSC for the purpose of completing the assessment and even without incriminating material, addition can be made since assessee has offered additional income before ITSC - CIT(A) sustained the additions made by the Assessing Officer by applying the provisions of section 245HA - HELD THAT - It is fact on record AO relied on the informations submitted before ITSC which in fact is only voluntary disclosure of adhoc expenses in order to avoid unnecessary verification and cumbersome exercise of following up with the Tax Authorities. Since settlement commission has rejected the application of the assessee, now assessee retracts the submissions made before settlement commission. The Assessing Officer now relying on the adhoc disclosure before settlement commission in order to make additions, which in our considered opinion is not proper. As Assessing Officer can use all the material which is submitted before settlement commission and Assessing Officer can make the addition based on the proper evidences on concealment of income or any evidences which proves that assessee has not disclosed its proper income. In the given case, it is also fact on record that in the search, no incriminating material was found and no other material available before the Assessing Officer to sustain the addition except relying on the voluntary disclosure before ITSC. As relying on Anantnadh Constructions and Farms (P.) Ltd. 2017 (5) TMI 1692 - ITAT MUMBAI we are inclined to delete the additions made by the Assessing Officer by solely relying on the information submitted before ITSC without there being any material in support of proposed addition. Accordingly, ground No. 1 and 2 are allowed. Deduction on account of education cess on the tax payable by the assessee - HELD THAT - We observe that the Hon'ble Jurisdictional High Court has considered this issue in detail in the case of Sesa Goa v. JCIT 2020 (3) TMI 347 - BOMBAY HIGH COURT and held in favour of the assessee.

Summary

Issues Involved:
1. Confirmation of additions made by the Assessing Officer without any incriminating evidence found at the time of search.
2. Confirmation of addition on account of additional income offered in the application filed before the Income Tax Settlement Commission.
3. Deductibility of education cess on the tax payable.

Issue-wise Detailed Analysis:

1. Confirmation of Additions Without Incriminating Evidence:
The assessee challenged the confirmation of additions made by the Assessing Officer (AO) without any incriminating evidence found during the search. The search and seizure action under section 132 of the Income Tax Act, 1961, was conducted on 16.11.2017. The assessee filed an application before the Settlement Commission under section 245C on 27-12-2019, which was rejected. The AO used the material filed before the Settlement Commission to determine the true income of the assessee, leading to the issuance of a show cause notice for the additional income offered. The assessee contended that the additional income was offered to buy peace of mind and avoid litigation, and no incriminating material was found. However, the AO made an addition of ?51,50,000 based on the voluntary disclosure before the Settlement Commission, which was confirmed by the Learned Commissioner of Income Tax (Appeals) [Ld.CIT(A)].

2. Confirmation of Addition on Account of Additional Income Offered:
The AO's addition of ?51,50,000 was based on the material submitted before the Settlement Commission. The Ld.CIT(A) sustained this addition, applying the provisions of section 245HA of the Act. The assessee argued that the additional income was offered voluntarily and without any incriminating evidence. The Tribunal observed that the AO relied solely on the voluntary disclosure before the Settlement Commission without any supporting material or evidence of concealment of income. The Tribunal referenced the case of Anantnadh Constructions and Farms (P.) Ltd. v. DCIT, where it was held that no addition could be made based solely on a declaration before the Settlement Commission without incriminating material. Consequently, the Tribunal deleted the additions made by the AO, allowing the assessee's grounds.

3. Deductibility of Education Cess:
The assessee argued that education cess on the tax payable should be allowed as a deduction, relying on the decision of the Hon'ble Bombay High Court in the case of Sesa Goa v. JCIT, which held that education cess cannot be disallowed under section 40(a)(ii) of the Act. The Ld. DR referred to the contrary decision of the Hon'ble Kolkata Tribunal in Kanodia Chemicals & Industries Ltd. v. Addl. CIT, which held that education cess is not an allowable deduction. The Tribunal noted that the Hon'ble Supreme Court's decision in CIT v. K. Srinivasan dealt with the levy of tax, not the deductibility of education cess. The Tribunal also considered the CBDT Circular No. 91/58/66 - 111(19) dated 18.05.1967, which clarified that cess is not to be disallowed under section 40(a)(ii). The Tribunal followed the jurisdictional decision of the Hon'ble Bombay High Court in Sesa Goa and other coordinate bench decisions, allowing the deduction of education cess.

Conclusion:
The Tribunal allowed the appeal filed by the assessee, deleting the additions made by the AO based on the voluntary disclosure before the Settlement Commission and allowing the deduction of education cess. The judgment emphasized the need for incriminating evidence to support additions and upheld the deductibility of education cess based on jurisdictional precedent and CBDT circulars.