2016 (5) TMI 1009 - AT - Income Tax

Reassessment u/s 153A/153C - Held that - We are of the opinion that the A.O. has made reassessment u/s 153A/153C of the Act on the basis of information/material available in the return of income without referring to any seized material. A.O. had no jurisdiction to make additions u/s 153A of the Act for the assessments which are not pending as on the date of search. In this case the search was conducted on 14.7.2009. The assessment for the assessment years 2004-05 to 2007-08 were not pending as on the date of search. The time limit for issue of notice under sec. 143(2) has been expired. Therefore the A.O. has no jurisdiction to reassess the income for the assessment year 2004-05 to 2007-08 in the absence of any incriminating materials. Hence we delete the additions made by the A.O. for the assessment year 2004-05 2005-06 & 2007-08. - Decided in favour of assessee Estimation of net profit from the business - Estimation of net profit of 10% on trading turnover and 15% on contract receipts - Held that - CIT(A) has rightly estimated the net profit of 10% in respect of trading business and 12.3% in respect of contract receipts by taking into account the net profit declared by the assessee for the assessment year 2006-07. We do not see any error or infirmity in the order passed by the CIT(A) as far as estimation of net profit for assessment year 2008-09 and 2009-10. Hence we inclined to uphold the order of the CIT(A) and rejected the ground raised by the assessee as well as revenue for the assessment year 2008-09 & 2009-10. Additional income towards inflation of labour charges at the time of search - Held that - CIT(A) held that the assessing officer is not correct in estimating the net profit of 15%. On over all appreciation of facts such as disclosure of additional income on estimate basis actual turnover achieved by the assessee the disclosure made by the assessee is quite reasonable and do not require any interference. Therefore the action of the A.O. in estimating the 15% on the total turnover is rejected and business profit admitted by the assessee are directed to be accepted. The facts remains before us. The assessee has not brought on record any evidences to prove that the findings of the fact recorded by the CIT(A) is incorrect. The CIT(A) after considering the relevant facts has directed the A.O. to accept the return filed by the assessee. We do not see any error or infirmity in the order passed by the CIT(A). Hence we inclined to uphold the order passed by the CIT(A) for the assessment year 2010-11 and reject the ground raised by the assessee as well as revenue. Separate additions towards interest income miscellaneous receipts and foreign exchange gains - Held that - No merits in the arguments of the assessee for the reason that just because fixed deposits are kept for the purpose of obtaining bank guarantee the interest earned on such fixed deposits cannot be held as part of business receipts for the purpose of estimation of net profit. Similarly in respect of miscellaneous receipts the assessee has not made out any case by on record that these miscellaneous receipts are part of main business activities of the assessee. In the absence of any records the A.O. has rightly treated the miscellaneous receipts as income from other sources. Therefore we are of the opinion that the A.O. has rightly treated the interest on fixed deposits and miscellaneous receipts under the head income from other sources. Coming to the foreign exchange gain we do not see any merits in the arguments of the A.O. for the reason that the foreign exchange gain or loss arises in the course of business of the assessee. The assessee is involved in the business of import of machinery spare parts which resulted in foreign exchange gain. As per the principles of accounting the assessee at his option can either reduce the cost of materials or shown the gain separately in the financial statements. Though these items are considered as incidental to the activity of the assessee the foreign exchange gain is essentially a part of business receipts for the purpose of estimation of net profit. Therefore we are of the opinion that the A.O. was not correct in making separate additions towards foreign exchange gain when the net profit is estimated on gross receipts. The CIT(A) without appreciating the facts has upheld the order of the A.O. Therefore we direct the A.O. to delete the additions made towards foreign exchange gain. Accordingly the ground raised by the assessee is partly allowed. Claim of depreciation on assets - CIT(A) held that in the absence of credible evidences the claim of the assessee in respect of depreciation cannot be entertained - Held that - The assessee has failed to brought on record any evidences to prove that the findings of the fact recorded by the CIT(A) is incorrect. Therefore we are of the opinion that the CIT(A) is rightly rejected the claim of the assessee. We do not see any error or infirmity in the order passed by the CIT(A) with regard to the deduction of depreciation. Hence we inclined to uphold the order of the CIT(A) and reject the ground raised by the assessee. Charging of interest u/s 234A & 234B - Held that - The A.O. without adjusting the seized cash has computed the interest u/s 234A& 234B of the Act. Though the assessee claims that the A.O. has not adjusted seized cash for the tax liability the assessee has not furnished any details with regard to the quantum of amount to be adjusted for each assessment years. In the absence of any details we are of the opinion that the issue needs to be re-examined by the A.O. in the light of the above discussions. Therefore we set aside the issue to the file of the A.O. and direct the A.O. to examine the issue in the light of the above discussions and re-compute the interest in accordance with law.

Summary

Issues Involved:

1. Validity of assessment proceedings under section 153A of the Income Tax Act.
2. Estimation of net profit from the business.
3. Separate additions towards income from other sources.
4. Claim of depreciation on assets.
5. Charging of interest under sections 234A and 234B of the Income Tax Act.

Detailed Analysis:

1. Validity of Assessment Proceedings under Section 153A:

The primary issue was whether the Assessing Officer (A.O.) had the jurisdiction to reassess the income for assessment years 2004-05 to 2007-08 under section 153A of the Income Tax Act, given that these assessments were not pending as of the date of the search. The Tribunal held that the A.O. could not reassess the income for these years in the absence of any incriminating material found during the search. The Tribunal relied on the ITAT Special Bench decision in All Cargo Global Logistics Ltd. and the A.P. High Court decision in CIT Vs. M/s. AMR India Ltd., which stated that the A.O. could only reassess completed assessments based on incriminating material found during the search. Consequently, the Tribunal directed the A.O. to delete the additions made for the assessment years 2004-05, 2005-06, and 2007-08.

2. Estimation of Net Profit from the Business:

The A.O. estimated the net profit at 10% for trading business and 15% for contract receipts, citing the lack of books of accounts and supporting vouchers. The assessee contended that the net profit margins in his business were lower, ranging from 6% to 8%. The Tribunal upheld the CIT(A)'s decision to estimate the net profit at 10% for trading business and 12.3% for contract receipts, based on the net profit declared by the assessee for the assessment year 2006-07, which was 12.3%. The Tribunal found no error in the CIT(A)'s estimation and rejected the grounds raised by both the assessee and the revenue for the assessment years 2008-09 and 2009-10.

3. Separate Additions Towards Income from Other Sources:

The A.O. made separate additions for interest on fixed deposits, foreign exchange gains, and miscellaneous receipts, treating them as income from other sources. The Tribunal upheld the A.O.'s treatment of interest on fixed deposits and miscellaneous receipts as income from other sources, stating that these were incidental to the business activity. However, the Tribunal directed the A.O. to delete the additions made towards foreign exchange gains, as these were part of the business receipts arising from the import of machinery spare parts.

4. Claim of Depreciation on Assets:

The assessee claimed depreciation on assets, which the A.O. disallowed due to the lack of supporting evidence. The CIT(A) upheld the A.O.'s decision, and the Tribunal agreed, noting that the assessee failed to produce credible evidence to substantiate the claim. The Tribunal upheld the CIT(A)'s order, rejecting the ground raised by the assessee.

5. Charging of Interest Under Sections 234A and 234B:

The assessee argued that the A.O. should have adjusted the seized cash towards the tax liability before computing interest under sections 234A and 234B. The Tribunal agreed with the assessee, stating that the seized cash should be adjusted to the existing tax liability first. However, due to the lack of details regarding the quantum of the amount to be adjusted, the Tribunal remanded the issue back to the A.O. for re-examination and directed the A.O. to recompute the interest in accordance with the law.

Conclusion:

The Tribunal's judgment provided a comprehensive analysis of the issues, affirming the CIT(A)'s decisions on most points while providing specific directions for re-examination in certain areas. The appeals filed by the assessee were partly allowed, and those filed by the revenue were dismissed.