2020 (8) TMI 718 - AT - Income Tax

Assessment u/s 153A - Addition on account of unexplained sundry creditors - treated as income of the assessee u/s 68 - HELD THAT - The said amount was received by the assessee from different parties which have duly been reflected in assessee s books of accounts. During the assessment proceedings the assessee submitted monthly summary ledger for all the parties from whom payments were received. All the credit balances have been duly reflected in assessee s books and amounts were received in due course of business. As mentioned, the assessee is a property developer and agent engaged in buying, selling and developing of the plots and properties. The payments received by the assessee were the advance from the parties. Complete detail of the same was filed before Ld. AO during the course of assessment. AO while making this addition u/s 153A has nowhere referred to any seized or incriminating material or document. We rely on the judgment of CIT vs. Kabul Chawla 2015 (9) TMI 80 - DELHI HIGH COURT and therefore we are of the view that no addition can be made in an unabated assessment in absence of any incriminating material seized as a result of search.That being so, we decline to interfere in the order passed by the ld. CIT(A), his order, on this issue, is hereby upheld and ground no. 1 raised by the revenue is dismissed. Admission of additional evidence - CIT-A admitting certain fresh evidence or materials produced by the assessee in contravention of the provisions of Rule 46A of I. T. Rules, 1962 - HELD THAT - Two additional grounds, the ld CIT(A) had rejected the ground No.1 and did not admit it, hence there is no question of additional evidence. Ground No.2 raised by the assessee during the appellate proceedings relates to charging of interest under section 243A and 234B of the Act. Since it is a legal issue and emanated from assessment order, hence it can not be treated as additional evidence. Taking into account the factual position narrated above there is no any violation of the provisions of Rule 46A of the Income Tax Rules, therefore we dismiss ground No.2 raised by the Revenue. Disallowance of expenses claimed under the head Purchases Payment made for plots, lands building - HELD THAT - Copy of audited profit and loss account was filed in which the purchase price of the plots purchased was duly disclosed. The details of purchases and payment details thereof were furnished. The assessee also incurred expenses of₹ 45,90,000/- and claimed under land leveling expenses and a sum of ₹ 51,51,293/- claimed as Boundary Expenses. We note that this being assessment u/s 153A of the Act therefore the addition shall only be made on the basis of incriminating material found or seized. We have mentioned our detailed reasoning in para No. 9 of this order stating that in case of unabated assessment addition should not be made without any incriminating material. That being so, we decline to interfere in the order passed by the ld. CIT(A), his order on this issue is hereby upheld and ground no. 3 raised by the revenue is dismissed.

Summary

Issues Involved:
1. Deletion of addition on account of unexplained sundry creditors.
2. Admission of fresh evidence or materials by CIT(A) in contravention of Rule 46A.
3. Deletion of disallowance of expenses claimed under "Purchases & Payment made for plots, lands & building".

Issue-wise Detailed Analysis:

1. Deletion of Addition on Account of Unexplained Sundry Creditors:

During the assessment proceedings, the Assessing Officer (AO) noticed that the assessee had shown sundry creditors of ?3,27,96,977/-, with ?2,02,59,880/- being newly introduced during the current year. The AO added this amount under section 68 of the Income Tax Act, 1961, due to lack of proof regarding the identity, creditworthiness, and genuineness of the creditors.

The Commissioner of Income Tax (Appeals) [CIT(A)] deleted this addition, observing that no incriminating material was seized during the search to support the AO's addition. The CIT(A) relied on the decisions in CIT vs. Continental Warehousing Corpn. Ltd. 374 ITR 645 and CIT vs. Kabul Chawla 380 ITR 573, which held that no addition can be made in an unabated assessment in the absence of any incriminating material found as a result of the search.

The Income Tax Appellate Tribunal (ITAT) upheld the CIT(A)'s decision, noting that the AO did not refer to any seized or incriminating material while making the addition. The ITAT emphasized that in the absence of any incriminating material, no addition can be made in an unabated assessment, as per the legal position established in CIT vs. Kabul Chawla 380 ITR 573.

2. Admission of Fresh Evidence or Materials by CIT(A) in Contravention of Rule 46A:

The Revenue contended that the CIT(A) allowed relief to the assessee by admitting fresh evidence in contravention of Rule 46A of the Income Tax Rules, 1962. However, the ITAT noted that during the appellate proceedings, the assessee did not submit any additional evidences before the CIT(A). The CIT(A) had adjudicated two additional grounds submitted by the assessee, rejecting one and admitting the other, which was a legal issue related to charging of interest under sections 234A and 234B of the Act.

The ITAT concluded that there was no violation of Rule 46A, as no additional evidence was admitted by the CIT(A). Therefore, the ITAT dismissed the Revenue's ground on this issue.

3. Deletion of Disallowance of Expenses Claimed Under "Purchases & Payment Made for Plots, Lands & Building":

The AO disallowed expenses of ?2,55,96,663/- claimed under "Purchases & Payment made for plots, lands & building", "Land Leveling expenses", and "Boundary expenses", as the assessee could not furnish the details of these expenses during the scrutiny proceedings.

The CIT(A) deleted the addition, noting that the assessee had furnished complete details of these expenses before the AO, and no adverse material was found during the search. The CIT(A) observed that the AO made the addition without referring to any seized material or credible information, and the addition was based on guesswork and surmise.

The ITAT upheld the CIT(A)'s decision, emphasizing that in the case of unabated assessment, additions should not be made without any incriminating material. The ITAT reiterated that the AO did not refer to any incriminating material while making the addition, and thus, the CIT(A)'s order was upheld.

Conclusion:

The ITAT dismissed all the appeals filed by the Revenue, upholding the CIT(A)'s orders on all the issues involved. The ITAT emphasized the importance of incriminating material in making additions during unabated assessments and found no violation of Rule 46A in the CIT(A)'s proceedings.