2017 (12) TMI 1394 - AT - Income Tax

Assessment u/s 153A - disallowance u/s 69C - Held that - CIT(A) has not specified as to what incriminating material was discovered in the search conducted on 21.07.2011. In our considered view the addition in the unabated assessment can only be made only on the basis of incriminating material for a particular year. Since no incriminating material was seized during the search for the year under consideration thus no addition in the unabated assessment can be made. Hence the assessment order passed by AO by making addition on account of disallowance u/s 69C of the Act in the assessment order passed under section 143(3) rws 153A is invalid. Bogus purchases - estimation of profit - Held that - Keeping in view of any possibility of the revenue leakage which is very thin in the present case the disallowance of purchases of steel for Surat- Dahisar and Kolhapur project at 5% of the impugned (disputed) purchases would meet the end of justice. Similar view was taken by Hon ble Gujarat High Court in CIT Vs Simit P Seth 2013 (10) TMI 1028 - GUJARAT HIGH COURT Disallowance of depreciation on certain steel material - Held that - We have noted that we have already held that the assessment order for AY 2008-09 and 2009-10 passed under section 143(3) read with section 153A as invalid thus any consequence arise thereon has also become invalid. Even otherwise there is no material on record that the information on record that said machine or equipment for which depreciation was claimed is not put to use. The disallowance of depreciation on steel material under consideration is based on the addition on account of said alleged bogus purchase which we have already deleted. Hence the disallowance of depreciation is also to be deleted. Addition on ex-gratia payment made to Mr Madhav Hari Kale in cash - Held that - We have seen that despite explaining the fact that Mr. Madhav H Kale was not in their employment the assessing officer has not bring any material on record the facts to prove it otherwise. Even before us no contrary material is placed before us or any contrary law is brought in our notice. We have seen that the learned Commissioner (Appeals) granted relief to the assessee after considering the contention of the assessee and the material placed before him. In our view the finding of learned Commissioner (Appeals) is based on record reasoned one and does not require any further interference at our end. In the result the ground of appeal raised by revenue is dismissed

Issues Involved:
1. Validity of assessment orders under section 143(3) read with section 153A.
2. Additions made under section 69C for unexplained expenditure.
3. Disallowance of depreciation on certain materials (steel).
4. Addition of alleged commission charges on accommodation entries.
5. Levy of interest under sections 234B and 234C.
6. Initiation of penalty proceedings under section 271(1)(c).

Detailed Analysis:

1. Validity of Assessment Orders under Section 143(3) read with Section 153A:
The assessee challenged the validity of the assessment orders passed under section 143(3) read with section 153A, arguing that no incriminating material was found during the search, thus making the assessments invalid. The Tribunal observed that the assessment for the relevant years was completed under section 143(3) before the search, and no incriminating material was found during the search to justify the additions. The Tribunal relied on the decision of the Hon'ble Bombay High Court in CIT Vs Continental Warehousing Ltd. and held that no additions can be made in respect of assessments which have become final if no incriminating material is found during the search. Consequently, the Tribunal declared the assessment orders invalid for the years 2008-09 and 2009-10.

2. Additions Made Under Section 69C for Unexplained Expenditure:
The assessee disputed the additions made by the AO under section 69C for unexplained expenditure on the grounds that the purchases from M/s Karma Industries Ltd. and its associate concerns were genuine. The Tribunal noted that the AO had relied on the statement of third parties without providing the assessee an opportunity to cross-examine them and without any incriminating material found during the search. The Tribunal restricted the disallowance of purchases to 5% of the impugned purchases instead of the entire amount, considering the possibility of revenue leakage.

3. Disallowance of Depreciation on Certain Materials (Steel):
The AO disallowed depreciation on certain materials (steel) used in fixed assets, treating the purchases as bogus. The Tribunal observed that the AO had not brought any material on record to prove that the assets were not put to use. As the Tribunal had already restricted the disallowance of purchases to 5%, it held that the disallowance of depreciation was not justified and allowed the depreciation as claimed by the assessee.

4. Addition of Alleged Commission Charges on Accommodation Entries:
The AO added alleged commission charges on accommodation entries, estimating 2% of the purchases from Karma Industries Ltd. The Tribunal noted that the AO had not brought any material on record to substantiate the payment of commission. Consequently, the Tribunal deleted the addition of commission charges.

5. Levy of Interest Under Sections 234B and 234C:
The Tribunal held that the levy of interest under sections 234B and 234C is consequential and does not require specific adjudication.

6. Initiation of Penalty Proceedings Under Section 271(1)(c):
The Tribunal held that the ground disputing the initiation of penalty proceedings under section 271(1)(c) is premature and dismissed it.

Separate Judgments:
The Tribunal delivered a consolidated order for all the appeals, addressing the common issues involved. The conclusions drawn in one appeal were applied to other appeals with similar facts and circumstances.

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