2023 (12) TMI 1115 - AT - Income Tax

Unaccounted interest receipts - Survey action u/s 133A of the Act was carried out in the premises of one Vatika Group/ third party - AO on the basis of the seized documents, it emerged that the assessee company alongwith the other group entities had actually entered into the loan agreements with the entities of Vatika Group, whereas such transactions were otherwise camouflaged as transactions of sale and purchase of properties - CIT(A) deleted addition - HELD THAT - Evidences relied upon by the AO could not be considered to indicate that the property transactions between the Vatika group and the assessee were actually loan transactions. Thus, the Tribunal has upheld the action of the CIT(A) in deleting the addition made by the Assessing Authority on account of interest income as being misplaced. In view of the similarity of the case set up by the AO in the present case viz-a-viz that in the case of M/s SEH Realtors Pvt. Ltd, following the decision of our Coordinate Bench 2023 (4) TMI 1276 - ITAT DELHI we hereby affirm the findings of the CIT(A) on the issue in dispute and accordingly the Appeal of the Revenue for Assessment Year 2006-07 is hereby dismissed. Assessment u/s 153A - disallowance u/s. 14A - CIT(A) deleted addition as observed that there is no incriminating material unearthed during the search, on the basis of which, the said disallowance has been made by the AO - HELD THAT - In our view, in the absence of any material to dislodge the factual finding of the CIT(A) that the disallowance u/s. 14A is not based on any incriminating material found during search, the action of the CIT(A) in applying the ratio of the judgement of the Hon ble Delhi High Court in the case of Kabul Chawla 2015 (9) TMI 80 - DELHI HIGH COURT cannot be faulted. Moreover, the judgment in the case of Kabul Chawla (supra) has since been approved by the Hon ble Supreme Court in the case of PCIT vs. Abhisar Buildwell Pvt. Ltd. 2023 (4) TMI 1056 - SUPREME COURT Accordingly, the order of the CIT(A) on this issue is also affirmed, and the Ground No. 5 raised by the Revenue in AY 2011-12 is also dismissed.

Summary

Issues Involved:

1. Addition on account of unaccounted interest.
2. Treatment of transactions as loan or sale/purchase.
3. Disallowance under Section 14A of the Income Tax Act.
4. Cross objections by the assessee.

Summary:

1. Addition on account of unaccounted interest:

The Revenue's appeal for the assessment year 2006-07 involved the addition of Rs. 5,75,00,000/- on account of unaccounted interest, which was deleted by the CIT(A). The issue arose from a search and seizure action at the premises of the Vatika Group, where documents suggested that transactions labeled as property sales were actually loan transactions. The CIT(A) concluded that the evidence did not indicate that the transactions were loan transactions and deleted the addition. The Tribunal upheld the CIT(A)'s decision, noting that similar findings were made in the case of SEH Realtors Pvt. Ltd., where the CIT(A)'s decision was also upheld by the Coordinate Bench.

2. Treatment of transactions as loan or sale/purchase:

The Tribunal examined the agreements between the assessee and Vatika Group, noting that the agreements were for the sale of plots with an option for the buyer to sell back to Vatika. The CIT(A) found that the transactions were genuine property sales and not loans, as evidenced by the terms of the agreements, the accounting treatment in the books, and the lack of any indication of interest payments. The Tribunal agreed with the CIT(A), emphasizing the need to interpret the entire contract harmoniously and noting that the agreements did not support the AO's conclusion of loan transactions.

3. Disallowance under Section 14A of the Income Tax Act:

For the assessment year 2011-12, the Revenue's appeal included a ground regarding the disallowance under Section 14A amounting to Rs. 1,77,827/-. The CIT(A) observed that there was no incriminating material unearthed during the search to support this disallowance, and thus, following the jurisdictional High Court's judgment in CIT vs. Kabul Chawla, the addition was rightly deleted. The Tribunal affirmed this decision, noting that the Supreme Court had approved the judgment in Kabul Chawla.

4. Cross objections by the assessee:

The assessee's cross objections for the assessment years 2006-07 to 2011-12 were not pressed during the hearing and were dismissed as academic in nature, given the Tribunal's decision in the Revenue's appeals.

Conclusion:

The Tribunal dismissed the Revenue's appeals for the assessment years 2006-07 to 2011-12, upholding the CIT(A)'s decisions on the issues of unaccounted interest and the nature of the transactions. The disallowance under Section 14A was also affirmed, and the assessee's cross objections were dismissed.