2020 (9) TMI 1094 - AT - Income Tax

Assessment u/s 153A - additions/disallowances made in the assessments of the appellant and M/s IQCIPL which were unabated since assessment of AY 2013-14 was non-pending on the date of search, could be held to be sustainable on facts and in law? - HELD THAT - Additions/disallowances made by the AO on account of alleged on-monies/cash received on sale of flats car parks in the Shiromani Project was clearly beyond the scope of authority vested under section 153A owing to absence of any incriminating material or evidence deduced as a result of search conducted at the premises of the assessee in so far as unabated assessment for AY 2013- 14 is concerned. At the time of hearing before us, neither the Ld. CIT DR was able to controvert this contention of the Ld. AR nor the grounds of appeal preferred by the revenue assails the aforesaid finding of fact by the Ld CIT(A). Therefore we find that the aforesaid factual finding of the Ld. CIT(A) crystallizes and therefore we do not see any reason to interfere with the order of the Ld. CIT(A) on this matter and confirm the finding of Ld. CIT(A) and accordingly hold that the documents ID marked MSL/23 Pages 1 to 3, MSL/8 Page 13, SJ/MHD/MZ Page 2 and MSL/21 Page 32 to 36 also did not constitute incriminating material or evidence qua the assessee. Additions made u/s 68 69C in the hands of the assessee and M/s IQCIPL (since merged into the appellant company) - addition had referred to the statements of so-called entry operators recorded by different officers of Income-tax Department between the years 2013 to 2015 - HELD THAT - Third party statements referred by the AO to justify additions without being tested by cross examination cannot be the basis for making addition u/s 68 69C both in the case of M/s. IQCIPL and the appellant/assessee and we hold that these statements with the legal infirmities pointed out does not constitute as an incriminating material unearthed in the course of search conducted upon the assessee and in that view of the matter, the aforesaid additions made by the AO were unsustainable in law and on facts. Addition of cash payments made towards professional fees and purchases - HELD THAT - Seized documents referred by the AO for justifying the various addition/s made in the assessment orders passed in the name of the appellant/assessee and M/s IQCIPL, which has since merged with the assessee, did not constitute incriminating material and therefore no additions were legally permissible in the assessments framed u/s 153A for the AY 2013-14 for which the assessments did not abate when the search was conducted on 22-06-2016. Decided in favour of the assessee and against the Revenue. Addition made on account of alleged on monies (cash) received upon the sale of flat and car park(s) to M/s Satyam Bubna (HUF) in the Shiromani Project - HELD THAT - Statement of Shri Satyam Bubna recorded u/s. 132(4) of the Act (supra at para 20) and the action of AO of the Satyam Bbna HUF not to draw any adverse inference against Satyam Bubna HUF on the very same material discovered in search from their premises and the fact that in the subsequent search in assessee/appellant s premises did not yield any corroborative material, and in the absence of any other incriminating material to support the view of AO, no addition was warranted. Moreover, we note that assessee had filed corroborative material and evidence which substantiated that the entire sale consideration was received upon sale of flat car park to M/s Satyam Bubna HUF was through proper banking channel. We accordingly do not find merit in the Ld. CIT(A) s action of confirming the addition by way of alleged on-monies/cash received upon sale of flat car park to M/s Satyam Bubna HUF u/s 68. Addition u/s 68 - extrapolating unaccounted sales across all units sold by the appellant in Shiromani Project - HELD THAT - AO had made independent enquiries from all the flat purchasers in the Shiromani Project and despite such enquiries, the AO did not find any statement/material or transaction which would in any manner suggest let alone prove that the other flat purchasers had paid any part of the consideration in cash/ onmonies over and above the declared sale consideration. In absence of any such material (oral or documentary) therefore, we find merit in the Ld. CIT(A) s conclusion that the extrapolation made by the AO was per-se arbitrary and un-reasonable, therefore he rightly deleted the addition made. On this score, these grounds of the Revenue fail. Additionally, we also find merit in the Ld. CIT(A) s reliance on the following decisions holding that the theory of extrapolation cannot be applied on mere theoretical or hypothetical basis in absence of any incriminating corroborative evidence or material brought on record by the AO to warrant the same. Unsecured loans and interest paid thereon u/s 68 69C - HELD THAT - We note that no addition u/s 68 of the Act in respect of the loans brought forward from the earlier years was made in the past assessments. In the circumstances therefore we find that if in the past assessments, the Revenue did not draw adverse inference in respect of the principal loan amounts received from these 27 parties, then there was no apparent reason for the AO to dispute and disbelieve the genuineness of the transaction involving only the interest payment. We also note that in respect of interest paid during the relevant year, the appellant had complied with relevant provisions of Section 194A of the Act TDS and necessary evidence in respect thereof was also furnished. In the circumstances we find that in respect of payment of interest to these 27 parties, provisions of Section 69C of the Act had no application. Accordingly the addition made u/s 69C is hereby deleted. Loans taken from eight parties - disallowance u/s 69C being interest paid by the appellant on these loans - HELD THAT - in the proceedings before the Settlement Commission for the past years, identity and creditworthiness of loan creditors were questioned by the Revenue but the Settlement Commission accepted the genuineness of the appellant s loan transactions with the loan creditors. In the circumstances since the loans aggregating to ₹ 11,97,00,000/- were received from the bodies corporate, who had also advanced loans in the earlier years, and there being no change in the factual matrix and the nature of documentation produced in support of the loan transactions being same, we do not see any reason to take contrary view - addition made under Section 68 of the Act in respect of these loan creditors is hereby deleted. Consequent to our said finding, we also direct the AO to delete the disallowance u/s 69C being interest paid by the appellant on these loans. Unaccounted transactions - CIT(A) deleted the disallowance after noting that the entries were recorded in the regular books of accounts and therefore could not be considered to be unaccounted transactions of the appellant/assessee - HELD THAT - We note that the persons to whom the payments were made in cash were staff of the appellant/assessee through whom the payments were made for meeting expenses of the appellant. The Ld. CIT, DR was unable to controvert this factual finding of the Ld. CIT(A). We note that since the payments were made to staff members which facts were duly recorded in the regular books of accounts, the additions on the ground of being unaccounted payments was rightly deleted by the Ld. CIT(A). Validity of assessment - scheme of amalgamation conceived - notice u/s 143(2) of the Act was issued in the name of non-existent entity, it rendered the entire proceedings and consequent order to be nullity in the eyes of law. Addition on account of undisclosed expenses (from the seized material-MSL-8, page-15) - AO has made the addition based on this fact that from a perusal of MSL-8 page 15 it reveals that the assessee has received sale consideration of ₹ 10 lacs on the sale of servant quarter to a customer Manoj Rathi without entering it in the regular books of account - CIT-A deleted addition - HELD THAT - The conclusion of the Ld. CIT(A) on the facts discussed cannot be termed perverse and is a plausible view for the reason that the AO has assumed facts from a perusal of MSL-8 page 15 that the assessee has received sale consideration ₹ 10 lacs from Manoj Rathi in respect of Swarnamani project. We note that the AO has not made any attempt to summon Shri Manoj Rathi and confront him with MSL-8 page 15 and recorded his statement as to whether he has given ₹ 10 lacs to assessee on 21.06.2016 for the servant quarter in the said Swarnamani project. In the absence of any enquiry whatsoever, the hand written parchi/loose sheet cannot be the basis for the assumption of adverse facts against the assessee and, therefore, the Ld. CIT(A) rightly deleted the addition and, therefore, we confirm the action of the Ld. CIT(A).

Summary

Issues Involved:

1. Legality of additions/disallowances made in absence of incriminating material during search.
2. Justification of addition based on alleged on-monies received from sale of flats.
3. Validity of additions on account of unsecured loans and interest paid.
4. Legitimacy of additions based on third-party statements.
5. Validity of assessment orders issued to non-existent entities post-amalgamation.
6. Allowability of employee's contribution to PF/ESI paid beyond statutory due dates.
7. Addition on account of interest receivable from third parties.
8. Addition based on alleged undisclosed expenses.

Detailed Analysis:

1. Legality of Additions/Disallowances in Absence of Incriminating Material:
The Tribunal emphasized that under Section 153A of the Income Tax Act, additions in unabated assessments must be based on incriminating material found during the search. The Tribunal cited the Hon'ble Delhi High Court's decision in CIT vs Kabul Chawla and the Hon'ble Calcutta High Court's decision in Principal CIT vs M/s Salasar Stock Broking Ltd, which held that completed assessments can only be interfered with if incriminating material is unearthed during the search. The Tribunal found that the documents relied upon by the AO were either seized from third parties or were not incriminating in nature. Consequently, the additions made in the absence of incriminating material were held to be unsustainable.

2. Justification of Addition Based on Alleged On-Monies:
The Tribunal examined the AO's reliance on documents seized from third parties and statements recorded under Section 132(4) to justify additions for alleged on-monies received on the sale of flats. The Tribunal found that the documents did not explicitly mention the assessee or its projects and were not corroborated by any other evidence. The Tribunal also noted that the statements of third parties were not subjected to cross-examination. Therefore, the addition of ?4,81,38,000/- based on alleged on-monies was deleted. The Tribunal also held that extrapolation of such on-monies to other sales was untenable in the absence of corroborative evidence.

3. Validity of Additions on Account of Unsecured Loans and Interest Paid:
The Tribunal scrutinized the AO's addition of unsecured loans and interest paid under Sections 68 and 69C. The Tribunal noted that the assessee had provided sufficient documentation to substantiate the identity, creditworthiness, and genuineness of the loan transactions. The AO's reliance on third-party statements without cross-examination and failure to conduct independent inquiries was found to be inadequate. The Tribunal relied on judicial precedents, including CIT vs Orissa Corporation Ltd and CIT vs S.K. Bothra & Sons, HUF, to hold that the additions were unsustainable.

4. Legitimacy of Additions Based on Third-Party Statements:
The Tribunal emphasized the principle of natural justice, stating that statements of third parties cannot be used against the assessee without providing an opportunity for cross-examination. The Tribunal referred to the Hon'ble Supreme Court's decision in Andaman Timber Industries and the Hon'ble Bombay High Court's decision in CIT vs Reliance Industries Ltd, which held that reliance on third-party statements without cross-examination violates the principles of natural justice. Consequently, the additions based on such statements were deleted.

5. Validity of Assessment Orders Issued to Non-Existent Entities Post-Amalgamation:
The Tribunal examined the legality of assessment orders issued to non-existent entities post-amalgamation. The Tribunal referred to the Hon'ble Supreme Court's decision in Saraswati Industrial Syndicate and Spice Infotainment Ltd, which held that assessment orders issued to non-existent entities are void ab initio. The Tribunal found that the AO had issued notices and framed assessments in the name of non-existent entities despite being informed of the amalgamation. Consequently, the assessments were held to be null and void.

6. Allowability of Employee's Contribution to PF/ESI Paid Beyond Statutory Due Dates:
The Tribunal upheld the CIT(A)'s decision to allow deductions for employee's contributions to PF/ESI paid beyond the statutory due dates but before the due date of filing the return. The Tribunal relied on the Hon'ble Calcutta High Court's decisions in CIT vs M/s Vijay Shree Ltd and M/s Akzo Nobel India Ltd, which held that such contributions are allowable deductions.

7. Addition on Account of Interest Receivable from Third Parties:
The Tribunal examined the addition of interest receivable from third parties based on loose papers and statements. The Tribunal found that there was no enforceable award or agreement for the payment of interest, and the right to receive interest had not accrued in real terms. The Tribunal referred to judicial precedents, including CIT vs Shoorji Vallabhdas and CIT vs Eicher Ltd, which held that income must be real and not hypothetical. Consequently, the addition was deleted.

8. Addition Based on Alleged Undisclosed Expenses:
The Tribunal examined the addition based on a loose paper indicating an undisclosed expense of ?10 lakhs. The Tribunal found that the AO had not conducted any independent inquiry or provided corroborative evidence to substantiate the addition. The Tribunal upheld the CIT(A)'s decision to delete the addition, noting that the loose paper alone could not be the basis for the addition without further verification.

Conclusion:
The Tribunal allowed the appeals of the assessee and dismissed the appeals of the Revenue, holding that the additions and disallowances made by the AO were not sustainable in the absence of incriminating material, proper inquiries, and adherence to the principles of natural justice. The Tribunal also quashed the assessment orders issued to non-existent entities post-amalgamation.