2015 (11) TMI 289 - AT - Income Tax

Disallowance of expenditure under Section 153A - Held that - No incriminating material was found during the search regarding the additions made in the assessment order, that the additions were not justified, that the order passed by the AO was non-est, that the AO had not complied with the section 153D of the Act - Decided in favour of assessee.

Summary

Issues Involved:
1. Forwarding and Delivery Charges
2. Repairs & Maintenance Expenses
3. Bad Debts
4. Jurisdictional Issue under Section 153A

Detailed Analysis:

1. Forwarding and Delivery Charges:
The assessee challenged the disallowance of Rs. 1,50,000 out of the total expenses of Rs. 11,00,542 on the grounds that the expenditure was incurred in cash and was not fully verifiable. The CIT(A) upheld this disallowance, and the assessee argued that this amounted to a change of opinion since Rs. 1,00,000 had already been disallowed under section 143(3).

2. Repairs & Maintenance Expenses:
The CIT(A) upheld the disallowance of 20% of the expenses amounting to Rs. 2,37,251 incurred at the Farukhabad factory for cold storage repairs and maintenance. The basis for this disallowance was that the expenses were in cash and not verifiable to be wholly and exclusively for business purposes.

3. Bad Debts:
The CIT(A) upheld the disallowance of bad debts amounting to Rs. 5,05,584 on the grounds that the interest accrued was assessable as "income from other sources." The assessee contended that the details of bad debts had been considered and allowed earlier under section 143(3), and disallowing them without new facts amounted to a change of opinion.

4. Jurisdictional Issue under Section 153A:
The assessee raised additional grounds arguing that the CIT(A) erred in confirming the AO's order under Section 153A without any incriminating material found during the search. The assessee contended that the assessment order was non-est and not in accordance with the law as the AO had not complied with the provisions of Section 153D.

Analysis of Jurisdictional Issue:
The Tribunal first addressed the additional grounds related to the jurisdictional issue. The assessee argued that the AO's order was bad in law due to non-compliance with Section 153D, citing the case of Smt. Shreelekha Damani where similar grounds were allowed. The Tribunal found that the approval by the Additional CIT was mechanical and devoid of application of mind, as it was granted on the same day the draft order was submitted without analyzing the issues on merit.

The Tribunal referenced several analogous provisions and judicial precedents, including the Supreme Court's decision in Sahara India Vs CIT, which emphasized that approval must reflect the application of mind to the facts of the case. The Tribunal concluded that the approval in the present case was mechanical, and the assessment order was annulled as bad in law.

Outcome:
- The Tribunal allowed the appeal of the assessee for the AY 2005-06 and all other AYs (2003-04 to 2009-10) on similar grounds.
- The AO is at liberty to take any action as per the provisions of law following the annulment of the assessment order.

Conclusion:
The Tribunal annulled the assessment orders for all AYs due to the mechanical and non-analytical approval by the Additional CIT, which did not comply with the legislative intent of Section 153D. The appeals filed by the assessee were allowed, providing relief from the disallowances and additions made by the AO.