2020 (9) TMI 909 - AT - Income Tax

Disallowance u/s. 14A - assessee had earned share of profit from the firms which was exempt u/s. 10(2A) - AO disallowed expenses incurred towards earning exempt income from the investment made in the partnership firm - HELD THAT - As observed that assessee's own fund as well as interest free fund were more than investment made in partnership firm, therefore, disallowance on account of interest u/s. 14A is not sustainable in view of the decision of SHRI SURESHBHAI RANCHHODBHAI PATEL VERSUS ACIT, CIRCLE-12, AHMEDABAD 2015 (6) TMI 1208 - ITAT AHMEDABAD we set aside the issue to the file of assessing officer for re-computing the disallowance of interest after excluding owned funds and interest free funds as directed above in the finding of Co-ordinate Bench in respect of disallowance u/s. 14A for the A.Y. 2012-13 to 2014-15. Assessment u/s 153A - incriminating material found during search in the case of unabated assessment u/s. 153A(l)(b) - HELD THAT - In the case of DCIT Central Circle Agra vs. Gupta Academic Pvt. Ltd. 2010 (6) TMI 883 - ITAT AGRA has held that the documentary evidences were seized in the case of the search but in fact they were impounded in the course of survey in the premises of the assessee hence the very basis assuming jurisdiction r.w.s. 153C becomes untenable, therefore, the very order passed u/s. 153A is held to be void. In the light of the above facts and findings and judicial pronouncements, we consider that addition of ₹ 1.8 crores made in the unabated assessment u/s. 153A of the Act on the basis of document impounded during the course of survey at the associated premises of the firm is not valid, therefore, we set aside the order of ld. CIT(A) on this issue and allow the appeal of the assessee. Since we have quashed addition made in the assessment framed u/s. 153A of the Act based on the document found and impounded during survey u/s. 133 A of the Act, therefore, we do not find any need to adjudicate the remaining grounds of appeal on merit. - Decided in favour of assessee.

Summary

Issues Involved:
1. Addition under Section 14A of the Income Tax Act.
2. Addition under Section 69 of the Income Tax Act.
3. Validity of assessment under Section 153A based on documents impounded during a survey.

Issue-wise Detailed Analysis:

1. Addition under Section 14A of the Income Tax Act:

During the assessment, the Assessing Officer (AO) noticed that the assessee earned exempt income from a partnership firm and disallowed ?20,91,532/- as expenses incurred for earning this income under Section 14A. The Commissioner of Income Tax (Appeals) [CIT(A)] reduced this disallowance to ?13,96,684/- based on a proportionate allocation of interest expenditure. The assessee contested this, arguing that it had sufficient interest-free funds to cover the investment in the partnership firm. The Tribunal noted that the assessee's own and interest-free funds exceeded the investment in the firm, making the disallowance unsustainable. Citing a Co-ordinate Bench decision, the Tribunal directed the AO to recompute the disallowance excluding owned and interest-free funds. Thus, the appeal on this ground was allowed for statistical purposes.

2. Addition under Section 69 of the Income Tax Act:

The assessee did not press the ground related to the addition under Section 69 during appellate proceedings, leading to its dismissal.

3. Validity of Assessment under Section 153A:

A search under Section 132 and a survey under Section 133A were conducted on the assessee's premises, during which a document related to a land transaction was impounded. The AO added ?1.8 crores to the assessee's income based on this document, which indicated a cash payment. The assessee argued that the document was an unfinalized understanding and was canceled due to the seller's misrepresentation. The CIT(A) upheld the addition, but the Tribunal noted that the document was impounded during a survey, not a search, and thus could not form the basis for an addition under Section 153A. Citing jurisdictional High Court decisions, the Tribunal held that additions under Section 153A must be based on material found during a search. Consequently, the Tribunal set aside the CIT(A)'s order and allowed the appeal, deeming the addition invalid. The Tribunal did not address other grounds on merit due to this conclusion.

Combined Result:

- ITA 394/Ahd/2017 (Assessment Year 2010-11) was allowed.
- ITA 395/Ahd/2017, 396/Ahd/2017, and 397/Ahd/2017 were allowed for statistical purposes.

Order Pronounced in the Open Court on 19-08-2020.