2021 (9) TMI 756 - AT - Income Tax

Assessment u/s 153A - Whether Addition without any reference to incriminating material of cash purchase seized during the search action u/s 132? - HELD THAT - On perusal of the record that papers seized from assessee company are only bills of bricks purchased from local unregistered dealers for use in construction of hotel and payment thereof was made in cash which too was not in violation of section 40A(3) of the Act and those payments for purchase are duly recorded in regular books of accounts which is verifiable therefrom. The soft copy of books of accounts were also available before A.O. in assessment proceedings and copy of books of account showing the said entries were filled in paper book in appeal proceedings which was also forwarded to A.O. in the remand proceedings - A.O. has not made any comment therefor and repeated what is stated in assessment order. No document/loose paper was found/seized during the course of search at the business/residential premises of the assessee indicating any on money receipt/investment/advances made and any unexplained/overstated expenditure etc. in its books of account pertaining to the year under appeal, therefore, we are of the view that the mode and manner of the additions made in the orders passed u/s 153A deserves to be held bad in law. Rejection of books of accounts - Whether CIT(A) erred in allowing books of accounts in spite of the facts the assessee failed to furnish any evidence of bills of entry to determine whether the plant and machinery and other items for the year under consideration were actually received at any part of India and were being used for business purposes? - HELD THAT - AO has not mentioned the fact that books of accounts were provided to him in the electronic form on 29-12-2016. More so that audit report with requisite performa was also provided to him. The AO s requisition of all the bills and vouchers was not feasible seeing the qty. of bills and vouchers and also that such requisition was made on the fag end of the time barring date. These books and entire bills etc. were provided in the remand proceedings to the AO. In the remand proceedings the AO has not pointed a single defect in the books, bills or vouchers or the audit reports (both internal and external audit). In the remand proceedings the CIF bill, which were not produced before the AO were also produced. Even the allegation of unaccounted cash purchase of bricks was seen to be duly incorporated in the cash book also not adversely commented by the AO/auditor. The action of AO is not backed by any factual defect in the books of bills, vouchers or the audit report. CIT(A) has passed a well-reasoned order - Decided against revenue. Deduction u/s 35AD - assessee has not furnished the report in Form No. 10CCB alongwith return of income which is mandated as per Rule 12(2) of the Income Tax Rules, 1962 AND assessee has not got its recognition in two star or above category classified by the Central Government during the year under consideration as mandated u/s 35AD - HELD THAT - We observed that the only condition for claim benefit u/s 35AD is that it could be claimed by any person. No approval is required for the same - hotel should be classified as 2-star category or above by the Central Govt. which is precisely the case here. The assessee did construct a hotel which was more than 2-star categories and an application was made on 26-3-2011 to a competent authority. In this application it was well reflected the said hotel is 4-star hotel. Approval of the same was received on 31-3-2016. The receipt of approval of star category letter does not imply that from the date of application to the date of receipt of star category the hotel did not have a star category or was functional without a star category. In fact, the assessee made the intention very clear in the application that it would be operational w.e.f. 26-3-2011. The hotel was operational is also evident from the gross receipt received in the relevant period. The logic adopted by the AO has no factual basis - Assessee has claimed ₹ 13.86 crores on pro-rata basis. Out of the total capital expenditure only ₹ 13.86 crores as claimed u/s 35AD of the Act balance was carried forward as WIP. Same is duly certified by the auditor and is reflected in form 10CCB filed in this regard. - Decided in favour of assessee. Addition u/s 43B - non-payment of interest payment during the financial year since no documentary evidences have been produced - HELD THAT - Section 43B can be invoked if expenses for which deduction is claimed under chapter IV while computation of business income and not otherwise. In this case, the expenses have been capitalized and carried forward as capital work in progress to next year and no deduction in computation of business income is claimed and therefore, Section 43B is inapplicable in this case. Since, the ld. CIT(A) has deleted this addition on the basis that it is not a business deduction, therefore, Section 43B is not applicable in the case of the assessee. No new facts or circumstances have been brought before us by the ld AR in order to controvert or rebut the factual findings recorded by the ld. CIT(A), therefore, we see no reason to interfere into or deviate from the findings so recorded by the ld. CIT(A) qua this issue and we uphold the same. Addition u/s 69C - assessee failed to produce any documentary evidences regarding address, PAN and TIN of the suppliers - CIT-A deleted the addition - HELD THAT - As in course of search are only bills of brick purchased from unregistered dealers for use in construction of hotels and are recorded in books of accounts of assessee company. The books of accounts and copy of relevant A/c of purchases are produced for verification. The full address of those unregistered suppliers are available on seized bills itself but being petty unregistered dealers they have no PAN or TIN but this does not make them unverifiable and as expenses are duly recorded in regular audited books of accounts and cash payment which is not in violation of provision of section 40A(3) and its source is verifiable therefrom and in this case expenditure is duly recorded in books of accounts and source of cash payment is clearly depicted in books of accounts being out of withdrawal of cash from Bank A/c(s) of assessee company. Since, the ld. CIT(A) has deleted this addition on the ground that the expenses are duly recorded in the books of accounts which have been verified by the auditor with no adverse remark in the report by the auditor. There is no adverse verification in the remand proceedings too by the AO - Decided against revenue. Addition u/s 36(1)(va) on PF/ESI addition - delay in deposition of employees contribution towards ESI and PF u/s 36(1)(va) r.w.s. 2(24)(x) - CIT-A deleted the addition - HELD THAT - CIT(A) has placed reliance on the decisions of the Hon ble Rajasthan High Court in the case of CIT, Udaipur Vs. Udaipur Dugdh Utpadak Sahakari Sangh Ltd 2014 (8) TMI 677 - RAJASTHAN HIGH COURT and also in the case of CIT vs. State Bank of Bikaner and Jaipur 2014 (5) TMI 222 - RAJASTHAN HIGH COURT - In view of the above discussions, we are of the view that it is not disputed that the payments on account of ESI and PF have not been deposited by the assessee - we hold that there is no justification in the action of the AO in making a disallowance on account of delay in deposition of ESI and PF. No new facts or circumstances have been brought before us by the ld AR in order to controvert or rebut the factual findings recorded by the ld. CIT(A) - Decided against revenue. Income from other sources - whether the receipt shown in form no. 26AS has been duly accounted for under the head revenue from operation ? - CIT-A deleted the addition - HELD THAT - Necessary evidence like 26AS forms with TDS reconciliation vis a vis receipt and detailed ledger extracts have been furnished and the same were subjected to remand proceedings too. No new facts or circumstances have been brought before us by the ld AR in order to controvert or rebut the factual findings recorded by the ld. CIT(A), therefore, we see no reason to interfere into or deviate from the findings so recorded by the ld. CIT(A) qua this issue and we uphold the same. Addition made on account of excess payment of interest @18% on unsecured loan given to the related parties - as per AO interest @ 12.83% was determined after considering SBI s basic rate and risk factor or say on unsecured loan and assessee itself has taken loan from IDBI @ 14% per annum - CIT-A deleted the addition - HELD THAT - In this case the support required was high regular and therefore, the promoters who obviously are related persons had to infuse the required amount in the form of unsecured loans without any stipulation of repayment on interest @ 18%. The minimum market rate of interest of unsecured loan through brokers in the year was 14.40% p.a. plus brokerage @ 1.2% and interest payment is to be made by monthly in advance and loan was to be for stipulated fixed period after which repayment has to be made and such loans are available only to persons having credit in market while the loan taken by assessee from above specified concerns who are promoters of company is @ 18% interest. The interest is only credited at year end and not actually paid and loan is unsecured without any stipulation of period in which it is to be paid. Thus on these facts the interest rate of 18% p.a. to specified person is justified and within the market rates of interest on such loans and are at arm s length. No new facts or circumstances have been brought before us by the ld AR in order to controvert or rebut the factual findings recorded by the ld. CIT(A), therefore, we see no reason to interfere into - Decided against revenue.

Summary

Issues Involved:

1. Deletion of addition without reference to incriminating material.
2. Allowance of books of accounts despite lack of evidence for plant and machinery.
3. Allowance of deduction under section 35AD without required report.
4. Allowance of deduction under section 35AD without proper recognition.
5. Deletion of addition under section 43B for non-payment of interest.
6. Deletion of addition under section 69C for unverified expenses.
7. Deletion of addition under section 36(1)(va) for delayed PF/ESI payments.
8. Deletion of addition under income from other sources.
9. Deletion of addition for excess interest payment on unsecured loans.
10. Deletion of addition for excess interest payment on convertible debentures.

Issue-wise Detailed Analysis:

1. Deletion of Addition Without Reference to Incriminating Material:
The Tribunal held that the additions made by the Assessing Officer (A.O.) were not based on any seized material found during the search. The assessments for the relevant years were completed on the date of the search, and no incriminating material was found. The Tribunal relied on various judicial pronouncements, including the Supreme Court's decision in Meeta Gutgutia vs. Pr CIT and the Delhi High Court's decision in Kabul Chawla vs. ACIT, which established that no additions could be made in the absence of incriminating material. The Tribunal upheld the CIT(A)'s order deleting the addition.

2. Allowance of Books of Accounts Despite Lack of Evidence for Plant and Machinery:
The A.O. rejected the books of accounts due to the alleged failure to furnish evidence of bills of entry for plant and machinery. However, the Tribunal noted that the books of accounts were provided in electronic form and were audited with no adverse remarks. The Tribunal found no defects in the books, bills, or vouchers during the remand proceedings. The Tribunal upheld the CIT(A)'s order accepting the books of accounts.

3. Allowance of Deduction Under Section 35AD Without Required Report:
The A.O. disallowed the deduction under section 35AD due to the non-filing of Form 10CCB with the return. The Tribunal observed that the audit report was filed during the assessment proceedings, and various judicial decisions supported the view that the filing of the report with the return was not mandatory but directory. The Tribunal upheld the CIT(A)'s order allowing the deduction.

4. Allowance of Deduction Under Section 35AD Without Proper Recognition:
The A.O. disallowed the deduction under section 35AD, citing the lack of star categorization during the relevant year. The Tribunal noted that the hotel was operational and the application for star categorization was made, with approval received later. The Tribunal relied on judicial precedents that supported the allowance of deduction based on the hotel's operational status and subsequent categorization. The Tribunal upheld the CIT(A)'s order allowing the deduction.

5. Deletion of Addition Under Section 43B for Non-Payment of Interest:
The A.O. disallowed the interest payment under section 43B, alleging non-payment during the financial year. The Tribunal found that the interest was capitalized and carried forward as capital work in progress, not claimed as a business deduction. Therefore, section 43B was inapplicable. The Tribunal upheld the CIT(A)'s order deleting the addition.

6. Deletion of Addition Under Section 69C for Unverified Expenses:
The A.O. made an addition under section 69C for cash purchases from unregistered dealers. The Tribunal noted that the expenses were recorded in the books of accounts, and the payments were verifiable. The Tribunal found no basis for the A.O.'s conclusion that the expenses were out of books. The Tribunal upheld the CIT(A)'s order deleting the addition.

7. Deletion of Addition Under Section 36(1)(va) for Delayed PF/ESI Payments:
The A.O. disallowed the PF/ESI payments made after the due date. The Tribunal observed that the payments were made before the due date of filing the return, relying on the jurisdictional High Court's decisions. The Tribunal upheld the CIT(A)'s order deleting the addition.

8. Deletion of Addition Under Income from Other Sources:
The A.O. added the difference between the total receipts as per Form 26AS and the income shown by the assessee. The Tribunal noted that the receipts were from various services rendered and were part of the revenue from operations, not income from other sources. The Tribunal upheld the CIT(A)'s order deleting the addition.

9. Deletion of Addition for Excess Interest Payment on Unsecured Loans:
The A.O. disallowed interest paid to related parties, deeming it excessive. The Tribunal found that the interest rate of 18% was justified given the unsecured nature of the loans and market rates. The Tribunal relied on judicial precedents supporting the reasonableness of the interest rate. The Tribunal upheld the CIT(A)'s order deleting the addition.

10. Deletion of Addition for Excess Interest Payment on Convertible Debentures:
The A.O. disallowed interest on convertible debentures, considering it excessive. The Tribunal noted that the interest rate was determined based on the arm's length principle and market conditions. The Tribunal upheld the CIT(A)'s order deleting the addition.

Conclusion:
The Tribunal dismissed all the appeals filed by the Revenue, upholding the CIT(A)'s orders on all grounds. The Tribunal found that the additions made by the A.O. were not justified based on the facts and legal precedents.