2022 (9) TMI 1636 - AT - Income Tax

Assessment u/s 153A - Addition u/s 68 - incriminating material found in the course of search or not? - HELD THAT - We are of the considered view that the regular books of accounts maintained by the assessee in tally software, now being referred by the Revenue, to justify the impugned addition did not constitute incriminating material unearthed during the search. We are of the considered view that, the additions / disallowances made in the unabated AYs by the AO u/s 68 of the Act on account of unsecured loans, interest incurred thereon, and the alleged notional commission expense incurred for procurement of such loan, were not backed by any incriminating material found as a result of search, and therefore the AO is directed to delete the same. Even in respect of the disallowances made out of several expenses viz., labour charges, professional fees, brokerage, compensation expenses etc., it is noted that the same was disallowed only on the premise that the details were not submitted before the AO or they were insufficient. It is therefore noted that, none of these additions/disallowances were based on any incriminating material or evidence found in the course of search. CIT, DR was also not able to point out the relevant incriminating material or evidence based on which the impugned additions were made by the AO. Having regard to the above facts, in our considered opinion therefore, the additions impugned before us in the assessment order passed u/s 153A/143(3) by the AO were not supported or backed by any incriminating material found or seized in the course of search and therefore these additions made in the unabated AY 2010-11 was legally impermissible. Hence, we set aside the order of the lower authorities below and allow this ground of the assessee and direct the AO to delete the additions made in the assessment order. Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of additions made under Section 68 of the Income Tax Act for unabated assessment years without incriminating material.
2. Disallowance of interest on unsecured loans and notional commission.
3. Disallowance of various expenses such as brokerage, professional fees, and labour charges.
4. Treatment of abated assessments for the assessment years 2013-14 and 2014-15.

Issue-wise Detailed Analysis:

1. Validity of Additions under Section 68 for Unabated Assessment Years:
The primary issue was whether additions made under Section 68 of the Income Tax Act for the assessment years 2010-11, 2011-12, and 2012-13 (unabated years) were sustainable without any incriminating material found during the search. The Tribunal noted that for unabated assessments, additions can only be made based on incriminating material found during the search. The Tribunal referred to the judgments of the Hon'ble Bombay High Court in CIT vs. Continental Warehousing Corporation and CIT vs. Gurinder Singh Bawa, which held that in the absence of incriminating material, no additions can be made in unabated assessments under Section 153A. The Tribunal found that the regular books of accounts maintained in tally software did not constitute incriminating material. Therefore, the additions made under Section 68 for these years were deleted.

2. Disallowance of Interest on Unsecured Loans and Notional Commission:
The Assessing Officer (AO) had disallowed the interest paid on unsecured loans and added notional commission expenses, alleging that the loans were accommodation entries. The Tribunal found that these disallowances were not based on any incriminating material found during the search. The statement of Shri Jitendra Jain, recorded under Section 132(4), was not supported by any corroborative evidence found during the search. The Tribunal held that the statement alone could not justify the disallowances in unabated assessments, as per the decision in CIT v. Harjeev Aggarwal. Consequently, the disallowances were deleted.

3. Disallowance of Various Expenses:
The AO had made disallowances on various expenses such as brokerage, professional fees, and labour charges, citing insufficient details. The Tribunal noted that these disallowances were not based on any incriminating material found during the search. The Tribunal observed that the AO's disallowances were based on the premise that details were not submitted or were insufficient, rather than on any incriminating evidence. As such, these disallowances were also deleted.

4. Treatment of Abated Assessments for AYs 2013-14 and 2014-15:
For the assessment years 2013-14 and 2014-15, which were abated assessments, the Tribunal set aside the additions back to the file of the AO for fresh examination. The Tribunal directed the AO to review the issues afresh based on the material available on record and to complete the assessment on merits after providing the assessee with a proper opportunity of being heard. The Tribunal followed the precedent set in the case of M/s Kamla Landmarc Enterprises Vs DCIT & Others, where similar directions were given for abated assessments.

Conclusion:
The appeals for the assessment years 2010-11, 2011-12, and 2012-13 were allowed, resulting in the deletion of additions and disallowances made by the AO. The appeals for the assessment years 2013-14 and 2014-15 were allowed for statistical purposes, with directions for fresh examination by the AO. The Tribunal's decision was pronounced in the open court on 02.09.2022.