2021 (4) TMI 62 - AT - Income Tax

Assessment u/s 153C - additions made towards loan taken from Indus Ind Bank along with estimated interest on the ground that said loan was repaid on or before 31.03.2011 - additions made towards interest income on the ground that additions made by the Assessing Officer is not supported by any incriminating material found during the course of search - HELD THAT - When the assessment is unabated or concluded on the date of search, no addition could be made in absence of incriminating material found as a result of search. In this legal background, if you examine the claim of the assessee that additions made towards interest received is not supported by any incriminating material found during the course of search, we find that arguments taken by the assessee are devoid of merit, because the Assessing Officer has made additions towards interest income on the basis of document found during the course of search marked as annexure NRKRC/loose sheets which contains documents related to unaccounted repayment of loan to Indus Ind bank. The said loan taken from Indus Ind Bank was not disclosed to the income-tax department including repayment made towards said loan. Although, additions made by the AO towards unaccounted repayment of loan was deleted by learned CIT(A), but fact remains that documents found during the course of search clearly indicate that said loan was not disclosed to income tax department . Out of the said loan, the assessee has advanced loan to M/s. Standard Press India Pvt. Ltd. and that company has paid interest for four years to the account of the assessee in the financial year 2011-12 relevant to assessment year 2012-13. The assessee has credited interest received from company to the capital account, but was not offered to tax. The Assessing Officer has assessed interest received from said company in the assessment framed u/s.153C r.w.s 153A on the ground that interest received should be assessed to tax on receipt basis irrespective of the period for which said interest pertains to. Additions made towards interest income is having nexus with incriminating material found during the course of search and marked as annexure NRKRC/loose sheets/S/SNo.1(p.79 to 83). But, whether total interest received from the company is related to incriminating material found as a result of search or only interest received towards Indus Ind Bank loan account is related to said document has to be examined. The assessee has filed details of interest received of ₹ 48,48,820/- out of which a sum of ₹ 36,20,263/- pertains to loan taken from SBI and said loan was disclosed in the regular return of income filed by the assessee. Therefore, interest to the extent of ₹ 36,20,263/- is not having any reference to incriminating material found during the course of search. Hence, no addition could be made to interest received towards loan given out of SBI loan. Insofar as interest received towards Indus Ind Bank loan amounting to ₹ 13,28,557/-, there is a direct nexus between incriminating material found during the course of search vide document in annexure NRKRC/loose sheets/S/SNo.1(p.79 to 83) and interest income assessed to tax for the impugned assessment year. Therefore, to this extent, it cannot be said that there is no reference to incriminating material found during the course of search. Hence, we are of the considered view that the arguments taken by the assessee that there is no incriminating material to support additions towards interest in respect of Indus Ind Bank loan amounting to ₹ 13,28,557/- cannot be accepted. We are of the considered view that additions made by the Assessing Officer towards interest income on account of interest received for SBI loan to the extent of ₹ 36,20,263/- cannot be sustained, because said addition was not based on any incriminating material found as a result of search . Insofar as, additions made towards Indus Ind Bank loan amounting to ₹ 13,28,557/-, the said addition was supported by incriminating material found as a result of search and consequently, addition made by the Assessing Officer is in accordance with law. Hence, addition made towards Indus Ind bank loan interest is sustained. Appeal filed by the assessee is partly allowed.

Summary

Issues Involved:
1. Validity of notice u/s 153C based on seized documents
2. Assessment of interest income on loan transactions
3. Nexus between incriminating material and additions made

Analysis:

Issue 1: Validity of notice u/s 153C based on seized documents
The appeal challenged the validity of notice u/s 153C, contending that the seized document did not directly link the appellant to the transactions. The CIT(A) upheld the notice, citing the document belonging to the appellant's husband. However, the ITAT noted that the absence of seized material directly linking the appellant rendered the notice invalid. The appellant argued that the time limit for issuing notice u/s 143(2) had expired, further challenging the addition of unaccounted interest income. The ITAT analyzed the legal precedents and concluded that without incriminating material, additions in unabated assessments were impermissible.

Issue 2: Assessment of interest income on loan transactions
The Assessing Officer added unaccounted income towards loan repayment and interest based on seized documents. The CIT(A) deleted the addition related to the loan, noting its closure in the previous year. However, the CIT(A) upheld the addition towards interest income, stating it should be taxed on a receipt basis. The appellant argued that the interest credited to the capital account should not be taxed. The ITAT reviewed the evidence and found a nexus between the incriminating material and interest income, upholding the addition related to the loan from Indus Ind Bank.

Issue 3: Nexus between incriminating material and additions made
The ITAT analyzed the interest income received by the appellant, distinguishing between amounts related to different loans. While interest from one loan was disclosed in the regular return, the interest from the Indus Ind Bank loan lacked such disclosure. The ITAT found a direct nexus between the incriminating material and the interest income from the Indus Ind Bank loan, sustaining the addition. However, it held that the addition related to interest from another loan lacked a basis in incriminating material and therefore could not be sustained.

In conclusion, the ITAT partially allowed the appeal, upholding the addition towards interest income from the Indus Ind Bank loan while rejecting the addition related to a different loan.