2019 (6) TMI 650 - AT - Income Tax

Assessment u/s 153A - no incriminating material validating additions - HELD THAT - AO is not permitted to make the disallowance without having the supporting incriminating material in the case of completed assessments. Accordingly, the additions made by the AO for the A. Y. 2004-05 to 2008-09 relating to the interest disallowance, cash credits, estimation of undisclosed business income, disallowance u/s 40(ia) and the addition towards suppression of sales are unsustainable and accordingly deleted. Interest on loan used for purchase of property - allowable business expenditure - use for the purpose of business - CIT(A) confirmed the addition - HELD THAT - During the appeal hearing, the Ld. AR did not furnish any evidence to support the claim that the site was used for the purpose of business. Therefore we do not find any reason to interfere with the order of the Ld. CIT(A) and the same is upheld. Addition of cash credits u/s 68 - HELD THAT - Department has not made any enquiry and did not shift the burden to the assessee. Therefore, merely scrutinizing the confirmation letter, the AO cannot conclude that the loan is not genuine and credit worthiness is not proved. CIT(A) is also incorrect in holding that mere submission of PAN and confirmation letter is not sufficient to hold that the loan is genuine. Once the confirmation letters are placed before the AO, it is for the AO to establish that the creditor has no capacity to make the advance and the loan is ingenuine. It is also incorrect to hold that every assessee should run behind the creditors and parade them before the AO after furnishing the confirmation letters. Therefore, having filed the confirmation letters with PAN and the address, we hold that the assessee has discharged the burden and there is no case for making addition. Accordingly, we set aside the order of the CIT(A) and delete the addition made by the AO u/s 68 Addition u/s 68 relating to loans taken from creditors - HELD THAT - The assessee has filed the confirmation letters in respect of Sri Venkateswara Agencies with a clear address. The creditor also has furnished the income tax assessment details along with copy of the bank account. In the bank account copy of the creditor, a sum of ₹ 1 lakh was debited in favour of the assessee by cheque No. 540844. Since the creditor has filed the confirmations furnishing the details before ACIT, Vijayawada along with details of bank account and income tax returns, there is no reason to suspect the genuineness of the loan accepted from Sri Venkateswara Agencies, thus we are unable to sustain the order of the Ld. CIT(A) and accordingly delete the addition of sum received from Sri Venkateswara Agencies Loans accepted from Sri Balaji Marketing Services, the assessee did not file confirmation letter either before the AO or before the Ld. CIT(A). Hence, we do not find any reason to interfere with the order of the Ld. CIT(A). Accordingly, out of the addition confirmed by the Ld. CIT(A) for an amount of ₹ 2 lakhs, the addition of ₹ 1 lakh in the case of Sri Venkateswara Agencies is deleted and addition of ₹ 1 lakh in respect of Sri Balaji Marketing Services is confirmed. Accordingly, the appeal of the assessee on this ground is partly allowed. Addition towards unaccounted business income - addition of gross profits estimating the unaccounted sales in the hands of the assessee for non furnishing the names of the customers, delivery challans etc. - CIT(A) confirmed the addition - HELD THAT - AO did not bring on record any case which is having more profit than the assessee and the AO has not rejected the books of accounts in the assessee s case. CIT(A) also in his order observed that there is no complete documentary evidence available in the assessee s premises with regard to unaccounted production of finished goods. The Income Tax Department has resorted for the ultimate action of search in the assessee s case and did not find any evidence to show that the assessee has either resorted for unaccounted sales or inflation of purchases etc. AO also did not bring any evidence to show that the gross profit of the assessee is lesser than the comparable cases. In the absence of any such evidence, we hold that the addition made by the AO is purely based on guess work and the CIT(A) also confirmed the addition merely believing the presumption and assumptions of the AO. Therefore, we are unable to uphold the order of the Ld. CIT(A) and accordingly set aside the orders of the lower authorities and delete the additions made by the AO for the A. Y. 2009-10 and 2010-11 on account of undisclosed business income and allow the appeals of the assessee Unexplained investment in jewellery and silver articles - Addition of cash credit - CIT(A) allowed telescopic benefit which was admitted by the assessee under the head unaccounted income on account of business gifts being gold and silver items and sustained the addition as unaccounted income - HELD THAT - On close scrutiny of the Ld. CIT(A) order it is observed that the additional income admitted by the assessee was towards generation of income, but it is not linked to application of income towards the investments and expenditure. During the appeal hearing, the Ld. DR also could not make any submission or argument to support that the balance amount of ₹ 98 lakhs was already allowed the telescopic benefit in respect of any other asset or application of income towards expenditure or any other asset. Since the assessee has admitted additional income till the date of search and the items found during the course of search in respect of gold and silver articles were acquired before date of search and similarly the cash credits were also introduced in the books of accounts before the date of search, there is no reason to reject the telescopic benefit sought by the assessee, from the additional income declared by the assessee. We direct the AO to allow the telescopic benefit from additional income declared by the assessee towards investments in gold and jewellery

Summary

Issues Involved:
1. Admission of additional ground.
2. Validity of additions without reference to seized material.
3. Disallowance of interest paid on loan.
4. Addition of unexplained cash credits.
5. Estimation of undisclosed business income.
6. Telescopic benefit for unexplained investments and cash credits.

Detailed Analysis:

1. Admission of Additional Ground:
The assessee raised an additional ground during the appeal, questioning the validity of additions made without reference to seized material. The Tribunal admitted this ground, noting that the issue was purely legal and did not require factual verification. The Tribunal found force in the argument that the Assessing Officer (AO) is not permitted to make additions without incriminating material in search assessments under Section 153A read with Section 143(3).

2. Validity of Additions Without Reference to Seized Material:
The Tribunal examined whether the AO could make additions without incriminating material in the case of completed assessments. The Tribunal noted that for the assessment years (A.Y.) 2004-05 to 2008-09, the time limit for issuing notice under Section 143(2) had expired before the search. Therefore, these assessments were considered completed, and the AO was not permitted to make additions without incriminating material. The Tribunal relied on precedents, including the case of P. Ramaraju and decisions from various High Courts and the ITAT, to conclude that additions without incriminating material in completed assessments are unsustainable.

3. Disallowance of Interest Paid on Loan:
For A.Y. 2009-10, the AO disallowed interest of ?32,379 on a loan taken for purchasing property, which the assessee claimed was used for business purposes. The Tribunal upheld the disallowance, as the assessee failed to provide evidence supporting the business use of the property.

4. Addition of Unexplained Cash Credits:
The AO added various amounts as unexplained cash credits under Section 68. The Tribunal examined each case:
- For a loan of ?15,00,000 from Shri J. Ashok, the Tribunal found that the assessee had provided confirmation letters with PAN and address, shifting the burden to the department. Since the department did not conduct further inquiries, the addition was deleted.
- For loans from Sri Venkateswara Agencies and Sri Balaji Marketing Services, the Tribunal deleted the addition related to Sri Venkateswara Agencies, as the assessee provided sufficient evidence. However, the addition related to Sri Balaji Marketing Services was upheld due to a lack of evidence.

5. Estimation of Undisclosed Business Income:
The AO estimated undisclosed business income based on the suspicion that the assessee used raw materials from Annam Traders and Meenambal Agencies for unaccounted production. The Tribunal found that the AO's conclusions were based on assumptions and lacked conclusive evidence. The Tribunal noted that discrepancies in stock and cash balances were not uncommon and did not necessarily indicate unaccounted sales. The Tribunal set aside the additions for A.Y. 2009-10 and 2010-11, as the AO did not provide evidence of unaccounted sales or inflated purchases.

6. Telescopic Benefit for Unexplained Investments and Cash Credits:
The Tribunal addressed the issue of telescopic benefit for unexplained investments and cash credits. The assessee had admitted additional income of ?13.21 crores during the search, and the CIT(A) allowed telescopic benefit for cash found and seized. The Tribunal found that the balance amount of ?99,00,000 should also be considered for telescopic benefit, as it was not linked to any specific application of income. The Tribunal directed the AO to allow the telescopic benefit for unexplained investments in jewellery and cash credits from the additional income declared by the assessee.

Conclusion:
The Tribunal allowed the appeals of the assessee for A.Y. 2004-05 to 2008-09 and 2010-11, and partly allowed the appeal for A.Y. 2009-10. The Tribunal emphasized the necessity of incriminating material for making additions in completed assessments and provided relief to the assessee where the AO's conclusions were based on assumptions without concrete evidence.