2022 (3) TMI 1618 - AT - Income Tax

Assessment u/s 153A - addition u/s. 68 disallowance of interest u/s 37 disallowance of commission expenses and also ad hoc disallowance @30% on labor charges and professions fee paid during the year - HELD THAT - The addition made in these assessment orders passed by the assessing officer under section 153A without reference to any incriminating material found in search is not sustainable. Hence we set aside the orders of authorities below and allowed the claim of the assessee and delete the addition. Since we have already directed to delete the addition of loan itself the addition of commission and interest thereon disallowed are also directed to be deleted as the same are also without reference to any material foundering search. The appeal of the assessee allowed.

Summary

Issues Involved:
1. Legality of proceedings initiated under Section 153A of the Income Tax Act.
2. Violation of principles of natural justice.
3. Addition of unsecured loan under Section 68 of the Income Tax Act.
4. Disallowance of interest on loans under Section 37 of the Income Tax Act.
5. Addition of notional commission.
6. Disallowance of professional fees.
7. Disallowance of labor charges.
8. Charging of interest under Sections 234B and 234C of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Legality of Proceedings under Section 153A:
The tribunal examined whether the initiation of proceedings under Section 153A was valid, especially in the absence of incriminating material found during the search. It was argued that no addition could be made without such material. The tribunal relied on precedents from the Bombay High Court, which held that in the absence of incriminating material, additions in non-abated assessments under Section 153A are unsustainable. The tribunal concluded that the assessments for the years 2008-09 to 2012-13 were non-abated and no incriminating material was found, thus making the additions unsustainable.

2. Violation of Principles of Natural Justice:
The assessee contended that the principles of natural justice were violated as the statements of third parties were not provided, and no opportunity for cross-examination was given. The tribunal noted that the absence of such procedural fairness could render the assessment void. However, since the primary ground of lack of incriminating material was upheld, this issue was not further adjudicated.

3. Addition of Unsecured Loan under Section 68:
The tribunal considered whether the addition of Rs. 1 crore as unsecured loans was justified. The assessee argued that the addition was based solely on retracted statements and lacked corroborative evidence. The tribunal agreed, noting that the statement recorded under Section 132(4) without supporting evidence cannot be treated as incriminating. The tribunal directed the deletion of the addition for the non-abated years due to the absence of incriminating material.

4. Disallowance of Interest on Loans under Section 37:
The disallowance of interest amounting to Rs. 5,32,603 was challenged. The tribunal found that since the primary addition of unsecured loans was deleted, the consequent disallowance of interest was also unsustainable. The tribunal directed the deletion of the disallowance.

5. Addition of Notional Commission:
The tribunal examined the addition of Rs. 2 lakh as notional commission. The assessee argued that the addition was based on a general statement without specific evidence. The tribunal found that without corroborative evidence, such an addition was not justified, especially since the primary addition was deleted.

6. Disallowance of Professional Fees:
The disallowance of professional fees was contested on the grounds of lack of documentary evidence. The tribunal noted that the assessee had provided necessary details, and the expenses were incurred for business purposes. The tribunal directed the deletion of the disallowance.

7. Disallowance of Labor Charges:
Similar to professional fees, the disallowance of labor charges was challenged. The tribunal found that the assessee had submitted relevant details, and the expenses were business-related. The tribunal directed the deletion of the disallowance.

8. Charging of Interest under Sections 234B and 234C:
The assessee contested the charging of interest under Sections 234B and 234C. The tribunal did not specifically address this issue, as the primary grounds for addition were already resolved in favor of the assessee.

Conclusion:
The tribunal allowed the appeals for the assessment years 2008-09 to 2012-13, directing the deletion of additions due to the absence of incriminating material. For the assessment years 2013-14 and 2014-15, the tribunal remitted the cases back to the Assessing Officer for fresh consideration, emphasizing the need for proper evidence and opportunity for the assessee to be heard.