2016 (10) TMI 163 - AT - Income Tax

Assessment u/s 153A pursuant to search - abatement of pending assessments - Held that - making of an addition in an assessment under section 153A of the Act, without the backing of incriminating material, is unsustainable even in a case where the original assessment on the date of search stood completed under section 143(1) of the Act, thereby resulting in non-abatement of such assessment in terms of the Second Proviso to section 153A(1) of the Act. Trading addition - The addition to the trading results made by the CIT(A) is based on conjectures and surmises, in as much as, the statement of Mrs. Mehrunisa Husseini, relied upon by him is not relevant for the instant year. Secondly, even out of eight creditors, whose maximum balance was considered unexplained, the statement of only one party i.e. M/s. Nisha Enterprises was out of the statement of seven parties recorded by the Assessing Officer. Even on this aspect, we find that the said concern retracted it s initial statement and in the remand proceedings before the Assessing Officer, the said party admitted transactions with the assessee. The addition made on similar basis in connection with transactions with M/s. Nisha Enterprises in the hands of the sister concern for assessment year 2006-07 has been deleted by the Tribunal. Considered in this light, in our view, so far as trading results for the instant assessment year are concerned, the same cannot be treated as unreliable on the basis of the verification exercise of the creditors carried out by the Assessing Officer. Furthermore, the unsustainability of the addition made by the CIT(A) can be seen from the fact that he has applied adhoc gross profit rate of 6.5% on the entire sales made by the assessee instead of confining it to any particular transactions which were unproved, as per him. In fact, once the CIT(A) did not find the inadequacy brought out by the Assessing Officer with respect to sundry creditors as being justified, he had no plausible evidence, apart from mere doubts, to treat the trading result as unreliable. Therefore, the addition sustained by the CIT(A) is unwarranted and is hereby directed to deleted. In the result, appeal of the assessee allowed.

Issues Involved:
1. Deletion of addition for estimating household expenses.
2. Deletion of addition under Section 2(22)(e) of the Income Tax Act.
3. Deletion of addition under Section 68 of the Income Tax Act for unexplained cash credits.
4. Validity of additions made under Section 153A in absence of incriminating material.
5. Deletion of addition under Section 69B for unexplained investments.
6. Deletion of addition for unaccounted receipts.
7. Interest charged under Sections 234A, 234B, and 234C of the Income Tax Act.

Detailed Analysis:

1. Deletion of Addition for Estimating Household Expenses:
- Assessment Year 2002-03: The CIT(A) deleted the addition made by the Assessing Officer (AO) by estimating the household expenses at ?4.48 lakhs, citing that the assessee had not furnished details of household expenses and contributions by other family members. The Tribunal dismissed the appeal of the Revenue as the tax effect was below the prescribed limits for filing appeals.
- Assessment Year 2003-04: Similar deletion of addition for household expenses of ?6 lakhs was upheld by the CIT(A) and the Tribunal, emphasizing the lack of evidence for unaccounted household expenses found during the search.
- Assessment Year 2004-05 and 2005-06: The CIT(A) deleted similar additions for household expenses, and the Tribunal upheld these deletions, reiterating the lack of evidence and the arbitrary nature of the additions.

2. Deletion of Addition under Section 2(22)(e) of the Income Tax Act:
- Assessment Year 2002-03: The CIT(A) deleted the addition of ?3,78,059 made under Section 2(22)(e) for deemed dividend, holding that the transactions were for the supply of goods and repaid in kind. The Tribunal dismissed the Revenue's appeal due to the low tax effect.
- Assessment Year 2003-04: The CIT(A) deleted a similar addition of ?14,26,974, and the Tribunal upheld the deletion, noting the lack of incriminating material found during the search.

3. Deletion of Addition under Section 68 of the Income Tax Act for Unexplained Cash Credits:
- Assessment Year 2003-04: The CIT(A) deleted the addition of ?69,28,100 made under Section 68 as unexplained cash credit, holding that there was no material to doubt the assessee's explanation. The Tribunal upheld the deletion, emphasizing the absence of incriminating material found during the search.
- Assessment Year 2004-05 and 2005-06: Similar deletions were upheld by the CIT(A) and the Tribunal, with the Tribunal noting that the additions were not based on any material found during the course of the search.

4. Validity of Additions Made under Section 153A in Absence of Incriminating Material:
- Assessment Year 2003-04: The Tribunal held that the additions made by the AO were beyond the scope and ambit of Section 153A as the original assessment had become final and there was no incriminating material found during the search.
- Assessment Year 2004-05 and 2005-06: The Tribunal reiterated that additions under Section 153A require incriminating material found during the search, and upheld the deletions made by the CIT(A) for lack of such material.

5. Deletion of Addition under Section 69B for Unexplained Investments:
- Assessment Year 2005-06: The CIT(A) deleted the addition of ?5,05,39,000 made under Section 69B for unexplained investments in shares, noting that the AO had not produced sufficient evidence. The Tribunal upheld this deletion.

6. Deletion of Addition for Unaccounted Receipts:
- Assessment Year 2005-06: The CIT(A) deleted the addition of ?30,00,000 for unaccounted receipts based on loose papers seized from an employee, as there was no material to link the document to the assessee. The Tribunal upheld this deletion.
- Assessment Year 2006-07: A similar addition was deleted by the CIT(A) and upheld by the Tribunal, following the same reasoning as in the previous year.

7. Interest Charged under Sections 234A, 234B, and 234C of the Income Tax Act:
- Assessment Year 2005-06: The CIT(A) upheld the interest charged by the AO under Sections 234A, 234B, and 234C. The Tribunal did not find any specific discussion on this issue, implying that the interest charges were not contested further.

Conclusion:
The Tribunal consistently upheld the deletions made by the CIT(A) for various additions made by the AO under Sections 68, 69B, and 2(22)(e) of the Income Tax Act, as well as for estimating household expenses and unaccounted receipts, primarily on the grounds that these additions were not based on any incriminating material found during the search, thereby exceeding the scope of Section 153A.

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