2023 (5) TMI 1428 - AT - Income Tax

Assessment u/s 153A - absence of incriminating material found during the search - addition of unsecured loans u/s. 68 - HELD THAT - In the case of the assessee no incriminating information or observations have been gathered by the search team. The Assessing Officer has also referred to statement of sh Jayanti Lal Jain that he failed to produce the parties during the course of the search to discharge his onus. But said statement has been recorded in post search proceedings on 12/01/2020 and therefore cannot be said to be even part of the search proceedings. The information gathered in other independent survey under section 133A of the Act in the case of Tanaya Vincom P Ltd is also not part of the search proceedings in the case of the assessee. Confessional statement of Sri Kumar Pal Banda and statement of Sri Jayantilal Jain the coordinate bench of the Tribunal in the case of a sister concern of assessee namely M/s G-Ninemodular p Ltd. 2023 (4) TMI 1402 - ITAT MUMBAI and others held it to be non-incriminating relying on the decision of Best Infrastructure Pvt. Ltd . 2017 (8) TMI 250 - DELHI HIGH COURT Thus we hold that there is no incriminating material qua the addition of unsecured loans u/s. 68 of the Act and related additions of interest and commission expenses thereon for obtaining those unsecured loans. Unverified labour job work expenses - We are of the opinion that the Assessing Officer has neither made any reference of incriminating material found during the course of search not Ld. DR brought to our notice any incriminating material qua these additions and therefore we do not find any error in the order of the Ld. CIT (A) in concluding that additions are not justified any case of non-abated assessment otherwise then the aid of the incriminating material has held in the case of Continental Warehousing Corporation 2015 (5) TMI 656 - BOMBAY HIGH COURT Addition of unaccounted business income assessed based on diaries found from Sh Kumarpal Banda - We do not find any error in the order of the Ld. CIT (A) in applying net profit rate for computation of unaccounted profit from the unaccounted business transactions recorded in the seized diaries qua the year under consideration. Accordingly we uphold the finding of the Ld. CIT (A) on the issue in dispute. Disallowance for unverified purchases - CIT(A) deleted addition - HELD THAT - AO has noticed that no inward register of watchmen in respect of those purchases was found. Before the Assessing Officer it was explained by the assessee that requirement of e-way bill was made applicable under the GST rules from 03/06/2018 only and therefore prior to that there was no requirement of maintaining e-way bill under the relevant law. Regarding the inward watchman register also it was explained by the assessee that at the relevant time there was no policy/procedure of maintaining watchmen inward Register. The Assessing Officer disregarded the submissions. We find that Ld. CIT (A) after taking into those submissions has correctly deleted the disallowance made by the Assessing Officer. Disallowance of employee s contribution to PF/ESI - CIT(A) deleted addition - HELD THAT - In view of the decision of Checkmte services Pvt. Ltd. 2022 (10) TMI 617 - SUPREME COURT an assessee is not eligible for deduction under section 36(1) (va) of the Act in respect of the employee s contribution to PF/ESI deposited after the due date prescribed under the relevant Acts. Therefore the finding of the Ld. CIT (A) on the issue in dispute is set aside and the disallowance made by the Assessing Officer is sustained.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment include:

• Whether the reassessment under section 153A of the Income-tax Act is valid when no incriminating material was found during the search.
• Whether additions made by the Assessing Officer (AO) in the case of unabated assessments are sustainable without incriminating material.
• Whether the application of gross profit versus net profit rate on unaccounted sales is appropriate.
• Whether the additions related to unsecured loans, unexplained expenditure, and disallowance of expenses are justified without corroborative evidence.
• Whether the Tribunal can consider issues not decided by the CIT(A) under Rule 27 of the ITAT Rules.

2. ISSUE-WISE DETAILED ANALYSIS

Validity of Reassessment under Section 153A

• The legal framework involves section 153A of the Income-tax Act, which allows for reassessment in cases of search and seizure. The Bombay High Court in the case of Continental Warehousing Corporation established that in cases of unabated assessments, no addition could be made without incriminating material found during the search.
• The Tribunal upheld the CIT(A)'s decision to delete additions made by the AO for assessment years where no incriminating material was found, as these were unabated assessments.
• The Tribunal relied on precedents that emphasize the necessity of incriminating material for additions in non-abated assessments.

Application of Gross Profit vs. Net Profit Rate

• The issue revolves around whether gross profit or net profit should be applied to unaccounted sales discovered during the search.
• The Tribunal referred to various judicial precedents, including decisions by the Bombay High Court, which support the application of net profit rate on unaccounted sales rather than gross profit rate.
• The Tribunal found that the AO's application of gross profit was incorrect and upheld the CIT(A)'s decision to apply net profit rate, aligning with established legal principles.

Additions Related to Unsecured Loans and Expenditure

• The AO made additions under sections 68 and 69C related to unsecured loans and unexplained expenditure based on statements and reports from investigation directorates.
• The Tribunal found that these additions were not supported by incriminating material found during the search, and thus, were not sustainable in unabated assessments.
• The Tribunal emphasized the need for corroborative evidence to support such additions, which was lacking in this case.

Rule 27 of ITAT Rules

• The Tribunal considered the admissibility of applications under Rule 27, which allows a respondent to support the order appealed against on grounds decided against them.
• The Tribunal referred to the jurisdictional High Court's decision, which permits raising jurisdictional issues under Rule 27 even if not decided by the CIT(A), provided they go to the root of the matter.
• The Tribunal admitted the applications under Rule 27 for adjudication, following the principle that jurisdictional issues can be raised at any stage.

3. SIGNIFICANT HOLDINGS

The Tribunal made several significant holdings in this judgment:

• "The proceedings us 153A of the Act do not empower the Assessing officer to re-adjudicate the settled issues again, unless fresh incriminating material for the relevant year is found during the course of search proceedings."
• "In the case of completed/un-abetted assessments, where no incriminating material is found during the course of search, the assessment us 153A of the Act is to be made on originally assessed/returned income and no addition or disallowance can be made de hors the incriminating evidences for the relevant year are recovered during the course of search."
• The Tribunal upheld the application of net profit rate on unaccounted sales, aligning with the Bombay High Court's decision in similar cases.
• The Tribunal dismissed the applications under Rule 27 that sought to challenge the jurisdiction of the AO without incriminating material.
• The Tribunal dismissed the appeals of the revenue for assessment years 2014-15 to 2018-19, except for partial allowance in 2019-20, due to lack of incriminating material.