2024 (7) TMI 889 - AT - Income Tax

Assessment u/s 153A - Addition u/s 14A - incriminating material for deduction claim found during search or not? - HELD THAT - Observations made by the Ld. AO are routine in nature which have been found from the accounts of the assessee and submissions made thereon. It is also undisputed that the year under consideration is an unabated year considering the date of conduct of search within the meaning of section 153A of the Act. Admittedly no incriminating material has been referred to which has been found in the course of search of the assessee for the impugned assessment year. As respectfully following the decision of Abhisar Buildwell (P.) Ltd. 2023 (4) TMI 1056 - SUPREME COURT as no incriminating material has been unearthed during the course of search for the relevant assessment years no addition can be made by the AO in the assessments. Consequently the assessment orders passed for the impugned assessment years stand quashed. Decided against revenue.

Summary

Issues:
- Consideration of statement recorded during search/survey and incriminating document
- Disallowance under section 14A of the Income Tax Act

Analysis:

Issue 1: Consideration of statement recorded during search/survey and incriminating document

The appeals filed by the Revenue challenged the order of the Ld. CIT(A) regarding the assessment orders passed by the Assistant Commissioner of Income Tax, Circle-7(2), Mumbai, under section 143(3) r.w.s. 153A of the Income-tax Act, 1961 for Assessment Years 2016-17 and 2015-16. The primary contention raised by the Revenue was the failure of the Ld. CIT(A) to consider the statement recorded during the search/survey and incriminating document, despite discrepancies in the claim of deduction identified from the books of accounts during the search/survey. The Ld. CIT(A) extensively analyzed the submissions and judicial precedents, ultimately concluding that no incriminating material was found during the search, and hence, the additions made by the Assessing Officer were not sustainable. This decision was supported by the recent Supreme Court ruling in the case of Abhisar Buildwell Pvt. Ltd., emphasizing the necessity of incriminating material for additions under section 153A of the Act.

Issue 2: Disallowance under section 14A of the Income Tax Act

The second issue revolved around the disallowance made under section 14A of the Income Tax Act, 1961, and the applicability of Rule 8D of the IT Rules, 1962. The Assessing Officer had disallowed a certain amount under section 14A and Rule 8D, which was contested by the assessee before the Ld. CIT(A). The Ld. CIT(A) examined the facts and legal provisions, concluding that the disallowance was not warranted as there was no incriminating material found during the search that could justify such disallowance. The Ld. CIT(A) referred to various judicial decisions to support the deletion of the disallowance under section 14A. The decision was further reinforced by the Supreme Court ruling in the case of Abhisar Buildwell Pvt. Ltd., which emphasized the importance of incriminating material for making additions under section 153A of the Act. Consequently, the disallowance under section 14A was deleted by the Ld. CIT(A), and the additions made by the Assessing Officer were set aside.

In conclusion, both issues raised by the Revenue in the appeals were thoroughly analyzed by the Ld. CIT(A) and were decided in favor of the assessee based on the absence of incriminating material found during the search/survey. The decision was in line with judicial precedents and the Supreme Court ruling, leading to the dismissal of the appeals filed by the Revenue.