2013 (8) TMI 715 - AT - Income Tax

Unexplained investment u/s 69 - Ownership of income - Protective assessment - A.O. has concluded that the transaction in question related to purchase of beetel nut made by DTI Dinesh Tobacco Industries and not related to Shri Nand Kishore Malani in any manner - A.O. proposed to assess the income in the hands of DTI on the basis of DRI's finding - Held that - Shri Nand Kishore Malani has made a surrender of the entire money and he has also paid taxes thereon and has also disclosed this income in his return of income. - There is no scope for making any addition either on substantive basis or on protective basis in the hands of the assessee firm or in the hands of M/s Dinesh Pouches Ltd. Accordingly, we set aside the findings of the learned CIT(A) to that extent and order that this income has to be assessed in the hands of Shri Nand Kishore Malani, as individual. - Decided in favour of assessee. Disallowance of DEPB/ DDB - Held that - when original assessment order was completed before the date of search and any deduction was allowed therein and as thereafter no incriminating evidence was found in the search relatable to this issue, the disallowance in respect of DEPB/ DDB cannot be made or for that matter disallowance can be reduced undertaken in proceedings u/s 153A of the Act - Decided in favour of assessee.

Issues Involved:
1. Disallowance of deduction claimed under section 80IB.
2. Unaccounted payments for the import of beetle nuts.
3. Rejection of books of account and estimation of gross profit.
4. Disallowance of various expenses.
5. Disallowance of deduction under section 80HHC.
6. Protective versus substantive assessment.

Detailed Analysis:

1. Disallowance of Deduction Claimed under Section 80IB:
The core issue was the disallowance of Rs. 3,16,978/- for AY 2005-06 and Rs. 3,70,640/- for AY 2007-08 under section 80IB. The Assessing Officer (AO) excluded DEPB premium and rebate/discount from the business income, arguing they were not derived from the business. The assessee contended that no new material was found during the search to justify the addition under section 153A, which is meant for assessing undisclosed income. The Tribunal agreed with the assessee, stating that the AO cannot make a de novo assessment without new material. The disallowance was deleted, and the appeal was partly allowed.

2. Unaccounted Payments for the Import of Beetle Nuts:
The AO added Rs. 33,91,766/- for AY 2005-06 and Rs. 3,12,57,509/- for AY 2007-08 based on documents seized from Shri Nand Kishore Malani, who admitted to unaccounted payments for beetle nuts. The CIT(A) confirmed the addition in the hands of the assessee firm and deleted the protective addition in the hands of Malani and Dinesh Pouches Ltd. The Tribunal held that the income should be assessed in Malani's hands as he had already surrendered and paid taxes on it. The substantive addition in the assessee firm was deleted, and the Revenue's appeal was dismissed.

3. Rejection of Books of Account and Estimation of Gross Profit:
The AO invoked section 145(3) due to under-invoicing of imports, estimating a higher turnover and gross profit rate, leading to an addition of Rs. 2,78,019/- for AY 2005-06 and Rs. 2,24,025/- for AY 2007-08. The CIT(A) provided telescoping benefits and did not make a separate trading addition. The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's appeal on this ground.

4. Disallowance of Various Expenses:
For AY 2004-05, the CIT(A) confirmed a disallowance of Rs. 1,86,471/- for telephone, vehicle repairs, depreciation, traveling, and miscellaneous expenses. The Tribunal reduced the disallowance to Rs. 50,000/-, agreeing with the assessee's argument that only a nominal disallowance was justified.

5. Disallowance of Deduction under Section 80HHC:
The CIT(A) confirmed a disallowance of Rs. 30,56,999/- under section 80HHC due to the rejection of the netting of interest. The Tribunal allowed the assessee's appeal, maintaining consistency with previous decisions that disallowance cannot be made in proceedings under section 153A without new incriminating evidence.

6. Protective versus Substantive Assessment:
The AO made protective assessments in the hands of Malani and Dinesh Pouches Ltd. while making substantive additions in the assessee firm. The CIT(A) deleted the protective additions. The Tribunal held that the income should be assessed in Malani's hands, who had already surrendered it, and deleted the substantive addition in the assessee firm. The Tribunal dismissed the Revenue's appeals on this issue.

Conclusion:
- The assessee's appeals for AY 2005-06, 2006-07, and 2007-08 were partly allowed.
- The Revenue's appeals for AY 2005-06 and 2007-08 were dismissed.
- The Tribunal emphasized that additions under section 153A require new incriminating evidence and cannot be based on completed assessments without new material.

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