2014 (2) TMI 937 - AT - Income Tax

Validity of additions of Completed Assessement Sustainability of Assessment u/s 153A r/w 143(3) of the Act Held that - The decision in Shri Govind Agarwal vs. ACIT 2014 (2) TMI 810 - ITAT MUMBAI and Jai Steel (India) vs. ACIT 2013 (6) TMI 161 - RAJASTHAN HIGH COURT followed - The first proviso to section 153A empowers the AO to issue notice u/s 153A of the Act in respect of the AYs prior to the assessment year in which the search took place - The relevance of the existence of incriminating material is not provided in the provisions - As per the revenue there should not be any difference qua the completed assessments and the abated assessments for all six AYs in so far as the powers of the AO is concerned and he is empowered to issue notice u/s 153A and make additions either based in the incriminating material or otherwise. The case deals with the case of disturbing the completed assessment - Earlier the assessment was completed u/s 143(1) of the Act - In case of the concluded assessments, the additions are made only based on the incriminating material discovered during the search action the AO made additions by reassessing u/s 153A on the completed assessment u/s 143(1) of the Act thus, the issue of notice u/s 153A of the Act is valid - In the absence of incriminating material, the role of the AO is only to reiterate the returned income filed in response to the notice u/s 153A of the Act The arguments relating to the validity of the notice u/s 153 are disapproved - the validity of the notice issued u/s 153A of the Act confirmed the additions made by the AO in the absence of any incriminating material are not sustainable Decided in favour of Assessee. Addition u/s 68 of the Act - Unexplained gifts received Held that - The decision in M/s. Govind Agarwal (HUF) vs. DCIT 2014 (1) TMI 1394 - ITAT MUMBAI followed - there is no reference to any seized material or any incriminating documents so as to suggest that addition made in the assessment order are based on any incriminating material found at the time of search - Once that is so and also that the assessment for the assessment year has attained finality before the date of search, then no addition can be made under section 153A - the disallowance made u/s 68 is uncalled for as the same is beyond the scope of section 153A / 153C of the Act - No incriminating material in support of the additions made u/s 68 of the Act was brought to notice by the Revenue thus, the addition made u/s 68 of the Act is set aside Decided in favour of Assessee. Applicability of the provisions of section 14A of the Act Held that - Revenue contended that the AO erroneously applied the Rule-8D for the assessment year in question which actually applicable from the assessment year 2008-2009 - Considering the factual matrix of the case as well as the prayer of the Counsel for remanding the matter remitted back to the AO for fresh adjudication Decided in favour of Revenue.

Issues Involved:
1. Delay in filing Cross Objections.
2. Validity of additions made under Section 153A in the absence of incriminating material.
3. Admissibility of evidence and genuineness of share transactions.
4. Unexplained gifts and their treatment under Section 68.
5. Disallowance under Section 14A and applicability of Rule 8D.

Issue 1: Delay in filing Cross Objections

At the outset, the appellant's counsel highlighted a delay of 51 days in filing Cross Objections, attributing it to a bona fide mistake by an office assistant. The Tribunal, upon considering the affidavit and relevant Supreme Court judgments (Collector, Land Acquisition vs. Mst. Katiji & Ors and Concord of India Insurance Co. Ltd vs. Smt. Nirmala Devi), found reasonable and sufficient cause for the delay and condoned it, allowing the appeal to be adjudicated on merits.

Issue 2: Validity of Additions under Section 153A

The Tribunal examined the cross appeals for AY 2003-2004, focusing on whether the AO was empowered to make additions under Section 153A in the absence of incriminating material. The Tribunal referred to various judgments, including the Rajasthan High Court in Jai Steel (India) Ltd and the Special Bench decision in All Cargo Global Logistics Ltd, which held that in cases of completed assessments, additions under Section 153A should be based on incriminating material found during the search. The Tribunal concluded that the AO's additions were unsustainable as they were not backed by any incriminating material, thereby allowing the assessee's appeal.

Issue 3: Admissibility of Evidence and Genuineness of Share Transactions

The Revenue's appeal for AY 2003-2004 challenged the CIT(A)'s acceptance of the genuineness of share transactions. The Tribunal noted that no incriminating material was presented to support the AO's additions regarding the sale proceeds of shares. Given the absence of such material and relying on the judgment in Jai Steel (India) Ltd, the Tribunal dismissed the Revenue's grounds as academic.

Issue 4: Unexplained Gifts and Treatment under Section 68

For AY 2004-2005, the assessee contested the addition of unexplained gifts under Section 68. The Tribunal referred to its earlier decision in M/s. Govind Agarwal (HUF) vs. DCIT, where it was held that additions under Section 153A should be based on incriminating material found during the search. As no such material was presented, the Tribunal deleted the addition, allowing the assessee's appeal.

Issue 5: Disallowance under Section 14A and Applicability of Rule 8D

For AY 2005-2006, the assessee challenged the disallowance under Section 14A. The Tribunal, following its earlier decision and the Special Bench ruling in All Cargo Global Logistics Ltd, held that the disallowance was beyond the scope of Section 153A in the absence of incriminating material. The Tribunal deleted the disallowance, allowing the assessee's appeal.

However, in the Revenue's appeal for the same year, the Tribunal acknowledged the erroneous application of Rule 8D by the AO, which is applicable from AY 2008-2009 as per the Bombay High Court's decision in Godrej & Boyce Mfg. Co. Ltd vs. DCIT. The Tribunal remanded the matter back to the AO for fresh adjudication on a reasonable basis, allowing the Revenue's appeal for statistical purposes.

Conclusion:

The Tribunal's consolidated order addressed multiple issues across different assessment years, emphasizing the necessity of incriminating material for additions under Section 153A in completed assessments. It condoned the delay in filing Cross Objections, upheld the genuineness of share transactions, and deleted unexplained gifts and disallowances under Section 14A due to the absence of incriminating material. The matter of disallowance under Rule 8D was remanded for fresh adjudication.

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