2021 (6) TMI 542 - AT - Income Tax

Assessment u/s 153A - Limitation-Section 153B - Information received under information of exchange mechanism to the effect that the assessee owns an account at HSBC containing substantial credits which are not disclosed to the department - assessee argued statement of the assessee recorded on the date of the search and referred to in the show-cause notice by the AO, the assessee stated that on several occasions during the course of the search, he had stated that he never had any foreign bank account - AO held that the statement recorded was not under coercion and the retraction is an afterthought - HELD THAT - In the present case, the Swiss Competent Authority having disposed of the reference from Indian Competent Authority, the time period available will be from the date reference was made i.e. 21.01.2012 to the date when the Swiss Competent Authority disposed of the reference. On going through the remand report dated 13.10.2015 we note that the AO in this report has categorically stated that the first reference was made on 21.02.2012 by the Competent Authority for complete information but it was not received till the date of the assessment order i.e. 09.03.2015. Thus, the AO has made a categorical statement that information was not received till the date of passing of the order. The Id. AR is harping on the issue that it is not possible that a reply would not have been received to the reference made by the Competent Authority. AO in the remand report has made a categorical statement that till the date of the order i.e. 09.03.2015, reply was not received. The AO has made a categorical statement in the remand report, we cannot ask the AO to establish a negative evidence that no reply was received from the Swiss Competent Authority. The assessment consequent to this notice could have been completed by 31.03.2014. Since a reference was made on 21.01.2012 as per the AO, the extended period available will be as per clause (viii) of the Explanation below Section 153B. The contention of the ld. AR that the benefit of this clause will not be available in case such reference has been made before the initiation of assessment proceedings is not correct. Section 153B provides time limit for completion of assessment. This clause (viii) of Explanation below this Section 153B is part of this Section 153B itself. Section 153B cannot be read dehors the clause (viii) of the Explanation. We are of the view that it does not matter when the reference was made whether before the assessment proceedings having been initiated or later on. The time period for completion of assessment will include the extended period in case a reference has been made. Accordingly, we reject this contention of the ld. AR. Non-issue of notice u/s 143(2) - This issue was raised by the assessee before the ld. CIT(A) and in the remand report submitted by the AO, he has not disputed this fact. However, ld. CIT(A) has supported his order on the ground that notice under section 143(2) is not required to be issued in case of an assessment post search under section 153A of the Act. Though the ld. AR has relied upon various judgments in support of his contention, but we are of the view that those judgments are distinguishable as none of the judgments were on the issue of assessment being framed under section 153A consequent to the search - we dismiss this ground of the assessee. Assessment order passed by the AO stands vitiated as the same has been passed on direction of higher authorities - As per provision of section 119(1), the CBDT has been empowered to issue instructions and directions to other income tax authorities as it may deem fit from time to time. Such directions or instructions cannot be issued so as to require any income tax authority to make a particular assessment or to dispose of particular case in a particular manner. This restriction is on the Board. In the present case, the CIT being the supervisory authority, we are of the view that he was well within his right to issue administrative direction to the AO. It cannot be said that the order vitiated on account of such supervisory authority having been exercised by the Addl.CIT. In fact, the provisions of Section 153D provides that no order of assessment or reassessment shall be passed by an Assessing Officer below the rank of Joint Commissioner in respect of each assessment year u/s 153A except with the prior approval of the Joint/Addl. Commissioner. No incriminating material seized during search - There is no quarrel with the proposition that the French Competent Authority has handed over the pen drive to the Indian Competent Authority and the 6 page document is a print out of the said pen drive. But the ld. CIT(A) failed to address the argument of the assessee that the information contained in pen drive, the source thereof and author thereof and the authenticity of the information contained in the pen drive has not been established with any credible evidence or linkage with any of the document. The pen drive so received was just like an anonymous letter forwarded by French Competent Authority to the Indian Competent Authority. The issue which the ld. CIT(A) has failed to appreciate is the origin of the source of information only and certainly not the passing of the information from French Competent Authority to Indian Competent Authority, till such time the origin of source of information is authenticated. As decided in ANURAG DALMIA VERSUS DCIT, CENTRAL CIRCLE-26, NEW DELHI 2018 (2) TMI 1363 - ITAT DELHI AO still certain information are yet to be received and the material and information available with the department needs to be corroborated and needs to be further inquired into. Under these circumstances also in our opinion same cannot be done within the scope of Section 153A as we have already held that nothing has been found from the assessee during the course of search, which can preempt any post search inquiry. Albeit in abated assessments AO may have power to conduct further inquiry but not in case of unabated assessments. Abatement of assessment - We hold that the assessment years under consideration i.e. AY 2006-07 and AY 2007-08 were completed assessments and not abated assessments and hence, no addition can be made in absence of incriminating material found during the course of search in view of the judgment of the Hon ble Delhi High Court in the case of CIT Vs Kabul Chawla 2015 (9) TMI 80 - DELHI HIGH COURT No addition could be made of any unexplained bank deposits or interest earned thereon in any of the assessment years. In view of the above, we set aside the Orders of the authorities below and delete the entire additions.we hold that the addition made vide the assessment u/s 153A in the absence of any incriminating material is not sustainable. Statement u/s 132(4) - Whether the amounts have been deposited in the instant years? - It is settled law that statement cannot be read in isolation without any corroborative material. In the present case, we find that there is no evidence placed on record by the AO to corroborate the statement. Moreover, the Revenue itself is not clear whether the information pertains to the alleged bank account maintained with HSBC, Zurich or HSBC, Geneva as is evident from the paper book filed by the Revenue. No response has been received in response to the reference made to Swiss Competent Authority. No incriminating material whatsoever has been found during the course of the search. Under the facts and circumstances in our view, the provisions of Section 69 are not attracted to the assessee in the instant year. The AO has made the addition on the basis of suspicion pertains to the bank account. We are of the view that the addition made by the AO cannot be sustained. Accordingly, we direct the AO to delete the same. Unexplained Expenditure on marriage of the son - CIT (A) deleted the addition holding that the amounts spent on the marriage has been duly explained. - A.Y. 2009-10 - HELD THAT - The amount of ₹ 64,000/- has been explained to be out of the cash in hand. On going through the bank statement, we find that the explanation of the assessee with regard to ₹ 40,00,000/- is based on the withdrawals from the bank duly examined by the ld. CIT (A). Hence, we decline to interfere with the order of the ld. CIT (A) on this ground. Disallowance u/s 36(1)(iii) - interest on advances - HELD THAT - The interest bearing funds have been utilized towards interest bearing advances. This is evident from the balance sheet whereby interest bearing loan was ₹ 3,03,50,275 against which, interest bearing advances are ₹ 3,41,00,000 i.e. more than the amount borrowed. Further, from the bank statement, it is apparent that there is a direct nexus between the amount borrowed and the amount advanced. Disallowance u/s 14A - HELD THAT - The provisions of section 14A read with Rule 8D clearly require the AO to analyse the facts of the case so as to get to the satisfaction that certain expenditure had been incurred for earning tax exempt income and in the event of such satisfaction recourse to Rule 8D could be made. It is apparent from the perusal of the assessment order that no such exercise has been undertaken by the AO before the proceedings to resort to the machinery available under Rule 8D. This fact apart, the expenditure in the form of interest debited in the P L account has already been examined to have been incurred for earning taxable income in the form of interest earned - This being so it can be said that no expenditure has been debited in the P L account which could be attributed to earning of exempt income. In the circumstances the primary requisite as stipulated in section 14A does not get satisf ied and therefore no consequential disallowance either by resorting to the machinery available under Rule 8D or otherwise could be made. The disallowance made by the AO on protective basis is therefore directed to be deleted. Addition of Capital Introduced - CIT (A) deleted the addition after examination of the transfer of amounts in the various bank accounts which have been declared by the assessee - HELD THAT - We find that the ld. CIT (A) has judiciously examined the bank account of HDFC, State Bank of Patiala and the interest earned and the capital transferred. In the absence of any factual incongruency brought to our notice by the revenue, we hereby decline to interfere with the order of the ld. CIT (A) on this issue. Unexplained Cash Credit u/s 68 - closing balance as per the reconciled bank balance was different as per the audited balance sheet, the closing balance - AO made addition of the difference amount as credit unexplained - HELD THAT - The assessee is having a consolidated bank account for business activity and for personal affairs. While preparation of the audited balance sheet, the closing balance has been taken after taking into consideration the business transaction of the assessee. The borrowings from the overdraft account shown in the balance sheet as on 31.03.2010 prepared on 18.09.2010 shown a balancing figure which cannot be taken as the bank balance of the assessee when a single account is used for the purposes of the business and for personal transactions. The AO made addition on account of in appropriate reconciliation in the bank overdraft account and the bank statement. Hence, we decline to interfere with the order of the ld. CIT (A) on this ground. Disallowance of Interest u/s 36(1)(iii) - HELD THAT - While the loans given and taken on business account and the consequent payment of interest and receipt of interest have been part of the P L A/c and the profit earned thereof has been offered to tax, no disallowance is called for on the interest debited in the P L A/c. Unexplained Cash Credit u/s 68 - CIT(A) deleted the addition on the grounds that the amounts received during the year have been indeed given by the assessee in the earlier years to the company namely, M/s Consortium Securities Pvt. Ltd - HELD THAT - Before us, the fact of receipt of the money and the fact of payment of money in the earlier year to M/s Consortium Securities Private Limited has not been disputed. Hence, we hold that no undisclosed income could be assessed on the amounts received as refund of margin money during the year. With regard to the amount of the transaction with HDFC Bank and State Bank of Patiala, since the amount represents transfer of funds from disclosed accounts and since reconcile, we decline to interfere with the order of the ld. CIT (A). Addition on account of Profit Share - CIT (A) deleted the addition - HELD THAT - We are of the opinion that AO was not justified in drawing adverse inference against the assessee. The figures stated in the seized document pertains to the said company i.e. Global e-Travel Solutions Pvt. Ltd. We are also in agreement with the contention of the ld. AR that CIT(A) was not justified in giving partial relief once the figures stated in the seized document pertains to an independent entity i.e. Global e-Travel Solutions Pvt. Ltd. Assessment of the said company has also been made post search and no adverse inference has been drawn in respect of the seized document. Accordingly, we direct to delete the entire addition Addition on account of Sale of unlisted Shares - AO made addition holding that the book value of the share was ₹ 78.44 only and the amount received by the assessee over and above of the book value has been paid back in cash to the investor - HELD THAT - We find that the assessee has purchased per share of ₹ 120/- and sold at the same rate after three years. There is no evidence on record that the assessee has received more money and returned the amount to the purchaser. No seized material has been found which directs at substantiation of such impugned transaction or presumption made by the AO. Even, the bank statements do not lead to any such transfer of money or cash withdrawals to substantiate the allegations. Hence, we decline to interfere with the order of the ld. CIT (A). Disallowance u/s 14A - assessee has claimed interest in money lending business and worked out disallowance u/s 14A accordingly - HELD THAT - There being a direct nexus of the borrowing of the fund and its utilization towards interest bearing advances, there is no justification for allocating any interest expenditure towards earning dividend income. It is also surprising that AO has made a disallowance of ₹ 3,01,150 as administrative expenses despite no such expenses having been incurred by the assessee. We are of the view that no disallowance under section 14A is required in the present case and accordingly, we uphold the order of the CIT(A) deleting this addition and this ground of the Revenue is dismissed. Disallowance of Interest u/s 36(1)(iii) - CIT (A) deleted the addition after examining that the entire interest bearing borrowed funds have been utilized for the purpose of interest bearing advances - HELD THAT - As categorically mentioned that the ld. CIT (A) that the P L A/c of the assessee has been examined and the assessee has earned interest . From the examining of the details available on record and the balance sheet of the assessee, we find that the assessee has got sufficient own funds to extent interest free loans - no disallowance is called for on account of interest paid especially when all the interest bearing loans were shown to have been utilized for the purpose of business. Undisclosed income - Difference in capital account as per the audited balance sheet filed by the assessee AND un-audited balance sheet wherein the capital introduced - HELD THAT - We find that the ld. CIT (A) has deleted the addition holding that the balance in the capital account pertaining to the individual and the entity of lending business are different. On going through the record, we hold that the difference between capital account of the individual and the capital account of the business entity do not call for any determination of undisclosed income. Hence, we decline to interfere with the order of the ld. CIT (A) wherein the addition has been deleted after examining the due reconciliation of the amounts involved in the capital account. Addition u/s 68 - addition on account of the cash - HELD THAT - Availability of the cash which has been a part of the cash found on the date of search has not been disputed by either parties. Hence, we decline to interfere with the order of the ld. CIT (A) in deleting the addition on account of the cash, the existence and accountability of which has been duly proved. Unexplained investments - HELD THAT - The fact that the paintings have been sourced in a particular year is clearly recorded and the seized document as per Annexure-A1 and Annexure-A2. All the purchases have been confirmed by the artists concern and the confirmations of the artists or the delivery of the paintings have not been disputed by the revenue. CIT (A) has given the finding after detailed examination of the evidences filed. On going through the details containing name of the artist from whom the said paintings were acquired, mode of obtaining the same, i.e. by means of purchase or gift, along with price details viz., tag price and cost price and payment details, relevant extract of bank statement reflecting payment made to these artists, receipts issued by the artists in respect of paintings sold, acknowledgment of amount received from the assessee, copy of cheque issued towards such payment and confirmation of the artists in respect of gifted paintings and keeping in view the fact that out of the 13 paintings inventorized 5 paintings are acquired in 1990, one in 2001, 4 paintings acquired in 2006 and 3 in 2007, technically no addition is called for in the instant year. Unexplained jewellery - HELD THAT - As from the record that from the entire jewellery found an amount of 2148 gms. has been considered as unexplained and disclosed in the Income Tax Return of Smt. Tripat Kaur. The quantity of the jewellery is less than the threshold limit of the Wealth Tax Return. Since, the evidence proved the availability of the jewellery in the hands of the HUF, the addition made is liable to be deleted. It can also be held to be reasonably valid that the assessee possesses a minimum quantity of the jewellery in his personal capacity. In the absence of any other material brought before us, we hereby decline to interfere with the order of the ld. CIT (A) on this issue. Disallowance u/s 14A - interest in money lending business and worked out disallowance u/s 14A - HELD THAT - As being a direct nexus of the borrowing of the fund and its utilization towards interest bearing advances, there is no justification for allocating any interest expenditure towards earning dividend income. It is also surprising that AO has made a disallowance as administrative expenses despite no such expenses having been incurred by the assessee. In view of these facts, we are of the view that no disallowance under section 14A is required in the present case and accordingly, we uphold the order of the CIT(A) deleting this addition and this ground of the Revenue is dismissed. Levy of penalty under section 271(1)(c) in respect of the addition on account of investment in bank account - HELD THAT - In both these years, the penalty has been sustained by the CIT(A) on the ground that addition on account of investment in both these years have been upheld. Since we have deleted the addition in both these years, the very basis of levying penalty do not survive. Accordingly, we direct the AO to delete the penalty in both these years

Summary

Issues Involved:
1. Limitation under Section 153B.
2. Non-issue of notice under Section 143(2).
3. No incriminating material seized during the search.
4. Statement under Section 132(4).
5. Addition on account of unexplained investments.
6. Disallowance under Section 14A and Section 36(1)(iii).
7. Addition on account of unexplained cash credit under Section 68.
8. Addition on account of profit share.
9. Addition on account of sale of unlisted shares.
10. Addition on account of interest on foreign deposits.
11. Addition on account of capital introduced.

Detailed Analysis:

1. Limitation under Section 153B:
The assessment order passed by the AO was challenged on the grounds that it was barred by limitation, as it was passed beyond the statutory limit prescribed under Section 153B. The AO contended that the limitation period was extended due to a reference made for exchange of information under DTAA. The Tribunal held that the extension of the period of limitation by one year was applicable as the reference was made before the initiation of assessment proceedings under Section 153A.

2. Non-issue of notice under Section 143(2):
The assessee argued that the assessment was invalid as no notice under Section 143(2) was issued post filing of the return in response to notice under Section 153A. The Tribunal upheld the CIT(A)'s decision that issuance of notice under Section 143(2) is not mandatory for assessments under Section 153A, relying on the jurisdictional High Court's decision in Ashok Chadha Vs ITO.

3. No incriminating material seized during the search:
The Tribunal held that no addition could be made in the absence of incriminating material found during the search for non-abated assessments. The 6-page document received from the French Competent Authority was available before the search and did not constitute incriminating material. The Tribunal relied on the judgments in CIT Vs Kabul Chawla and other similar cases.

4. Statement under Section 132(4):
The Tribunal noted that the statement recorded during the search was retracted and could not be used against the assessee. It held that the statement alone, without any corroborative material, does not constitute incriminating material. The Tribunal emphasized that the addition under Section 69 could only be made in the year in which the investment was made, and the statement did not indicate any investment during the year under consideration.

5. Addition on account of unexplained investments:
The Tribunal deleted the additions made on account of unexplained investments in foreign bank accounts, holding that the 6-page document was not a bank statement and its authenticity was not established. The Tribunal also noted that no incriminating material was found during the search, and the statement recorded during the search did not indicate any investment during the year under consideration.

6. Disallowance under Section 14A and Section 36(1)(iii):
The Tribunal upheld the CIT(A)'s decision to delete the disallowance under Section 14A and Section 36(1)(iii), holding that the entire interest expenditure was for business purposes and there was no basis for making disallowance. The Tribunal noted that the AO did not establish any nexus between the borrowed funds and the amount invested in equity shares.

7. Addition on account of unexplained cash credit under Section 68:
The Tribunal upheld the CIT(A)'s decision to delete the addition on account of unexplained cash credit, holding that the amounts received during the year were duly explained and there was no evidence to support the AO's contention.

8. Addition on account of profit share:
The Tribunal deleted the addition on account of profit share, holding that the seized document pertained to the net worth of the company and not the half-yearly profit. The Tribunal noted that the assessee was not a shareholder but only a director in the company.

9. Addition on account of sale of unlisted shares:
The Tribunal upheld the CIT(A)'s decision to delete the addition on account of sale of unlisted shares, holding that there was no evidence to support the AO's contention that the assessee paid back the extra differential amount in cash to the investors.

10. Addition on account of interest on foreign deposits:
The Tribunal deleted the addition on account of notional interest on foreign deposits, holding that there was no evidence to support the AO's contention that the assessee earned interest on the alleged foreign bank account.

11. Addition on account of capital introduced:
The Tribunal upheld the CIT(A)'s decision to delete the addition on account of capital introduced, holding that the capital balance was duly explained and there was no basis for making the addition.

Conclusion:
The Tribunal allowed the appeals of the assessee for the assessment years 2006-07 and 2007-08, deleted the penalties under Section 271(1)(c), and dismissed the appeals of the revenue for the assessment years 2007-08 to 2012-13. The Tribunal also dismissed the cross-objections of the assessee as infructuous, except for the cross-objection related to the addition on account of profit share, which was allowed.