2019 (12) TMI 494 - AT - Income Tax

Assessment u/s 153A - materials seized in the search - Addition on account of interest on PDC s - interest was paid in cash to the vendors of the land by the vendee company on monthly basis @ 1.25% p.m. on the amount of PDC s and this cash payment of interest by the vendee company was not accounted for by it, in its books of account. - CIT(A) deleted the interest in respect of one sale deed and sustained the balance amount in respect of three sale deeds - HELD THAT - We find merit in the arguments of the Ld. Counsel for the assessee. Admittedly the first search took place on 15.11.2007 whereas the assessee company was incorporated on 06.07.2009 - Further there is nothing on record to show that during the course of search that took place on 07.12.2010 which was concluded on 05.02.2011, any document either belonging to the assessee or relating to the assessee were found i.e. either from the premises of the assessee or any of its group concerns. We, therefore, find merit in the submission of the assessee that when the assessee company was not in existence at the time of first search and when none of the documents found during the course of second search belong to the assessee and considering the fact that the AO in the body of the assessment order has not referred to any seized material found during the course of second search pertaining to assessee which gave any clue even in remotest manner with respect to payment of interest on PDCs out of books beyond 6 months from the sale deed, no addition could have been sustained. We find under identical circumstances the Tribunal in the case of M/s. Improper Infrastructure Private Limited, another sister concern, has deleted the addition made by the AO and sustained by the CIT(A) is not justified. We, therefore, direct the AO to delete the disallowance - Decided in favour of assessee.

Summary

Issues Involved:
1. Legality of assessment based on material seized during a previous search.
2. Justification of additions made on account of alleged interest on post-dated cheques (PDCs).
3. Validity of using material from a search conducted before the existence of the assessee company.
4. Consistency in the revenue's position regarding interest on PDCs across different assessment years.

Detailed Analysis:

1. Legality of Assessment Based on Material Seized During a Previous Search:

The Assessing Officer (AO) made additions based on findings from a search conducted on 15.11.2007 on M/s. BPTP Group, alleging that the assessee paid unaccounted interest on PDCs. The assessee argued that no fresh material was found during the subsequent search on 07.12.2010, and thus the additions were unjustified. The AO's reliance on findings from the 2007 search, despite the absence of fresh incriminating material, was contested as being based on presumptions and not on concrete evidence.

2. Justification of Additions Made on Account of Alleged Interest on PDCs:

The AO added ?1,10,07,688/- to the assessee's income, alleging unaccounted interest payments on PDCs. The CIT(A) upheld the addition, referencing findings from earlier searches that indicated a pattern of unaccounted interest payments within the BPTP group. The assessee argued that similar additions were deleted in the case of other group companies and that the AO's conclusions were speculative. The CIT(A) justified the addition by citing consistent evidence from seized documents that indicated unaccounted interest payments on extended PDCs.

3. Validity of Using Material from a Search Conducted Before the Existence of the Assessee Company:

The assessee company was incorporated on 06.07.2009, after the first search on 15.11.2007. The assessee contended that it was not in existence during the first search and that no incriminating material was found during the second search. The Tribunal agreed, noting that no documents found during the second search pertained to the assessee and that the AO did not refer to any such material in the assessment order. The Tribunal concluded that the addition based on the 2007 search findings was unjustified.

4. Consistency in the Revenue's Position Regarding Interest on PDCs Across Different Assessment Years:

The assessee highlighted that in the scrutiny assessment for A.Y. 2012-13, the AO did not make any additions for interest on PDCs, despite similar circumstances. The assessee cited the Supreme Court's decision in CIT Vs. Excel Industries, which emphasized consistency in the revenue's position. The Tribunal noted that the CIT(A) had deleted the interest addition for the sale deed pertaining to A.Y. 2011-12 but sustained it for three sale deeds from A.Y. 2010-11. The Tribunal found this inconsistent, especially since each assessment year should be considered independently.

Conclusion:

The Tribunal found merit in the assessee's arguments and noted that the AO's additions were based on presumptions without fresh incriminating material. The Tribunal referenced a similar case involving a sister concern, where additions were deleted under identical circumstances. Consequently, the Tribunal directed the AO to delete the disallowance, allowing the assessee's appeal.

Order:

The appeal filed by the assessee is allowed. The AO is directed to delete the disallowance. The decision was pronounced in the open court on 05.12.2019.