2017 (11) TMI 796 - AT - Income Tax

Assessment u/s 153A - Addition u/s 14A r.w.r. 8D - Held that - By the time the search and seizure operation took place under section 132 in case of the assessee on 20th January 2012, assessment for the impugned assessment year stood completed under section 143(3) of the Act. Thus, as on the date of search there was no abated assessment proceeding for the impugned assessment year. Therefore, in the proceedings initiated under section 153A of the Act, the Assessing Officer could have made additions only in respect of income which was found as a result of search or has a nexus with the incriminating materials found as a result of search. On the contrary, in the computation filed along with the original return of income, the assessee made a disallowance of ₹ 10 lakh under section 14A of the Act. Thus, the issue of disallowance of expenditure under section 14A stood concluded on completion of assessment under section 143(3) originally. That being the case, the Assessing Officer has no power to re visit such issue in the proceeding initiated under section 153A of the Act in the absence of any incriminating material concerning such issue. - Decided in favour of assessee Addition made on account of forfeiture of share warrant - Held that - Addition was not on the basis of any incriminating material found as a result of search. Rather, all information relating to forfeiture of share warrant and credit to capital reserve account was reflected in audited account as well as notes to the accounts filed along with return of income which was available before the Assessing Officer during the original assessment completed under section 143(3) of the Act. Therefore, on the date of search, there being no abated assessment the Assessing Officer could not have made addition in a proceedings under section 153A in respect of an issue which has no nexus with any incriminating material found during the search. For this reason also addition made cannot be sustained and the order of the learned Commissioner (Appeals) deserves to be upheld. Addition made on account of alleged bogus purchase - dispute is only with regard to source of purchase made by the assessee - Held that - The facts on record indicate that, though the assessee has made the purchases, however, he has failed to prove the exact source from which such purchases were made. In the circumstances, addition of the entire purchases would not be proper considering the fact that the assessee might have made such purchases by paying cash thereby avoiding payment of VAT. Therefore, for taking care of leakage of revenue on that account, it will be reasonable to estimate the profit on bogus purchase at 12.5%. Therefore, we direct the Assessing Officer to restrict the disallowance @ 12.5% of the bogus purchase. This ground is partly allowed. Addition made on account of delayed payment of employees contribution to PF/ESIC - Held that - There is no dispute that the assessee has paid employee s contribution to PF/ESIC dues within the due date of return of income as provided under section 139(1) of the Act. That being the case, the ratio laid down by the Hon ble Jurisdictional High Court in Hindustan Organic Chemicals Ltd. (2014 (7) TMI 477 - BOMBAY HIGH COURT ) squarely applies to the fact of the present case. Accordingly, we uphold the decision of the learned Commissioner (Appeals) by dismissing the ground raised. Deduction allowed. Claim of deduction under section 80IC - delivery challan impounded in the course of survey evidencing transfer of readymade garment from Daman Unit - Held that - As from the observations made by the learned Commissioner (Appeals) it is noticed that through evidence brought on record, the assessee was able to demonstrate that the deduction claimed under section 80IC was in respect of readymade garments manufactured at Baddi Unit and not on stock transfer from Daman Unit. The aforesaid factual finding of the first appellate authority has not been controverted by the Learned Departmental Representative by bringing before us any cogent evidence. Therefore, we are unable to disturb the findings of the learned Commissioner (Appeals) on this issue. Moreover, in the course of hearing it has been brought to our notice by the learned Authorised Representative that assessee s claim of deduction under section 80IC has been allowed in scrutiny assessment made under section 143(3) for the assessment year 2013 14. The aforesaid fact also gives credence to the genuineness of assessee s claim. In view of the aforesaid, we uphold the order of the learned Commissioner (Appeals). Resultantly, the ground raised by the Revenue is dismissed.

Summary

Issues Involved:
1. Deletion of addition under section 14A of the Income-tax Act, 1961.
2. Treatment of forfeiture of share warrants as capital or revenue receipt.
3. Addition on account of alleged bogus purchases.
4. Disallowance under section 14A read with rule 8D.
5. Delayed payment of employees’ contribution to PF/ESIC.
6. Deduction under section 80IC of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Deletion of Addition under Section 14A of the Income-tax Act, 1961:
The Revenue contested the deletion of an addition of ?55,61,275 made by the Assessing Officer under section 14A read with rule 8D. The Tribunal upheld the Commissioner (Appeals)' decision to delete the addition, noting that the original assessment for the year was completed under section 143(3) and there was no incriminating material found during the search to justify the addition under section 153A. The Tribunal referenced the All Cargo Global Logistics Ltd. v/s DCIT case to support its decision.

2. Treatment of Forfeiture of Share Warrants as Capital or Revenue Receipt:
For the assessment year 2009-10, the Revenue challenged the Commissioner (Appeals)' decision to treat the forfeiture of share warrants amounting to ?2,09,82,015 as a capital receipt. The Tribunal upheld the Commissioner (Appeals)' decision, noting that the forfeiture was not in the regular course of business and was supported by precedents such as DCIT v/s Brijlaxmi Leasing and Financing Ltd. and Asiatic Oxygen Ltd. The Tribunal also noted that the addition was not based on any incriminating material found during the search.

3. Addition on Account of Alleged Bogus Purchases:
For the assessment year 2009-10, the assessee challenged the addition of ?12,57,708 made on account of alleged bogus purchases. The Tribunal noted that while the purchases were not made from the concerned parties, the sales were genuine. It directed the Assessing Officer to restrict the disallowance to 12.5% of the bogus purchases to account for the potential cash purchases and VAT evasion.

4. Disallowance under Section 14A read with Rule 8D:
The assessee challenged the disallowance of ?94,09,045 made under section 14A read with rule 8D for the assessment year 2009-10. The Tribunal restored the issue to the Assessing Officer for fresh adjudication, noting that the disallowance made in the original assessment was repeated without any change and should not result in double disallowance.

5. Delayed Payment of Employees’ Contribution to PF/ESIC:
For the assessment years 2010-11, 2011-12, and 2012-13, the Revenue challenged the deletion of additions made on account of delayed payment of employees' contribution to PF/ESIC. The Tribunal upheld the Commissioner (Appeals)' decisions, noting that the payments were made before the due date of filing the return of income under section 139(1), as per the jurisdictional High Court's decision in CIT v/s Hindustan Organic Chemicals Ltd.

6. Deduction under Section 80IC of the Income-tax Act, 1961:
The Revenue challenged the Commissioner (Appeals)' decision to allow the assessee's claim of deduction under section 80IC for the Baddi Unit for the assessment years 2011-12 and 2012-13. The Tribunal upheld the Commissioner (Appeals)' decision, noting that the assessee had factually demonstrated that the deduction claimed was for goods manufactured at the Baddi Unit and not for stock transfers from the Daman Unit. The Tribunal also referenced the Hon'ble Jurisdictional High Court's decision in CIT v/s S. Khader Khan Sons to support its decision.

Conclusion:
The Tribunal dismissed the Revenue's appeals and partly allowed the assessee's appeals, directing fresh adjudication on specific issues and upholding the Commissioner (Appeals)' decisions where applicable. The Tribunal emphasized the importance of incriminating material in search assessments and the proper classification of receipts and disallowances under the Income-tax Act.