2021 (12) TMI 781 - AT - Income Tax

Assessment u/s 153A - Proof of incriminating material found in search - HELD THAT - AO could not have made any addition in AY 2008-09 since no incriminating material relating to this addition was unearthed during the course of search. A perusal of the assessment order of AY 2008-09 would show that the assessing officer has found out this discrepancy only during the course of assessment proceedings upon comparing the Balance Sheets of the assessee and M/s DLC. We have held earlier that this addition could not be sustained, since it is not based upon any incriminating material. Accordingly, this addition was deleted on legal ground discussed above. We noticed earlier that the AO was fair enough to exclude this amount of ₹ 1,51,44,860/- in AY 2009- 10. Since this addition has been deleted in AY 2008-09, the corresponding reduction of income made by AO in AY 2009-10 is liable to removed. Addition of payments made to Shri Basavaraj Banni - HELD THAT - It is an admitted fact that the assessing officer has disbelieved the payments made to M/s Banni Mines and Minerals Ltd. The fact remains that the purchases from the above said concern has been duly recorded and further the assessee has also sold them. The sale transactions have been accepted by the AO. It is also a fact that M/s Banni Mines and Minerals have filed VAT returns under Sales tax Act and it has reported the sales made by it to the assessee. Further Shri Basavaraj Banni has filed revised return of income disclosing the sales made to the assessee. His return of income has been accepted by the department in an order passed subsequent to the date of search. Shri Basavaraj Banni has later accepted that he has given wrong statement earlier and has given reasons for doing so. We notice that Shri Basavaraj Banni is changing his stands and is non-co-operative with the department. Hence we are of the view that his statements could not be relied upon. The fact remains that the materials available on record disproves his earlier statement. We do not find any reason to disbelieve the purchases as well as payments made to M/s Banni Mines and Minerals. Accordingly, we are of the view that the addition made in AY 2008-09 cannot be sustained. Payment made to M/s Banni Mines and Minerals - Since the assessee did not claim payment as expenditure, there is no question of disallowing any expenditure. Accordingly, the addition cannot be sustained. Transportation payment made to Shri Jagadish Devadiga - AO has placed full reliance on the statement given by Shri Jagadish Devadiga at the time of search, where as the assessee has provided evidences in the form of invoices raised by the above said person along with the trip details, income tax returns filed by above said person along with tax audit report. Shri Jagadish Devadiga has also subsequently furnished affidavit to the AO retracting from the statement given earlier. Thus, it is the witness who has retracted his statement. Since the AO did not accept the retraction statement, the assessee has asked for an opportunity to cross examine Shri Jagadish Devadiga, but the said opportunity was not given to the assessee by the AO, which has resulted in violation of Principles of natural justice. In any case, there was no material available with the AO to show that the transportation services were not provided to the assessee. On the contrary, various materials furnished by the assessee support the case of the assessee - addition deleted. Assessee appeal allowed.

Issues Involved:
1. Validity of search proceedings.
2. Additions made during assessment years 2008-09 and 2009-10 without incriminating material.
3. Addition of undisclosed transport income for assessment year 2008-09.
4. Addition of payments made to Shri Basavaraj Banni for assessment years 2008-09 and 2009-10.
5. Addition of payments made to Shri Jagadish Devadiga for assessment years 2009-10 and 2010-11.

Detailed Analysis:

1. Validity of Search Proceedings:
The assessee raised the issue of the validity of search proceedings under section 132 of the Income-tax Act, 1961, but did not press this ground during the hearing. Consequently, the grounds relating to this issue were dismissed as not pressed.

2. Additions Made During Assessment Years 2008-09 and 2009-10 Without Incriminating Material:
The assessee argued that the additions for assessment years 2008-09 and 2009-10 were invalid as no incriminating material was found during the search. The Tribunal noted that the assessments for these years were unabated, meaning they were not pending on the date of the search. The Tribunal referenced the jurisdictional High Court's decision in the case of PCIT vs. M/s Delhi International Airport (P) Ltd, which held that additions in unabated assessments could only be made based on incriminating material found during the search. Since no such material was found, the Tribunal directed the deletion of the additions for these years.

3. Addition of Undisclosed Transport Income for Assessment Year 2008-09:
The AO added ?1,51,44,860 as undisclosed transport income for assessment year 2008-09, based on a discrepancy between the assessee's and the debtor's balance sheets. The Tribunal found that this addition was not based on any incriminating material unearthed during the search but was discovered during assessment proceedings. Therefore, the Tribunal deleted this addition on legal grounds. Consequently, the corresponding reduction of income in assessment year 2009-10 was also directed to be removed.

4. Addition of Payments Made to Shri Basavaraj Banni for Assessment Years 2008-09 and 2009-10:
The AO treated payments of ?5,98,65,880 and ?5,53,18,500 made to Shri Basavaraj Banni as bogus expenditures for assessment years 2008-09 and 2009-10, respectively. The AO's conclusion was based on post-search enquiries and statements from Shri Basavaraj Banni, who initially denied conducting business with the assessee. However, the Tribunal noted that Shri Basavaraj Banni later retracted his statement, explaining he had given false information out of fear. The Tribunal found that the purchases and payments were genuine, supported by VAT returns and the revised income tax returns of Shri Basavaraj Banni. Therefore, the Tribunal deleted the additions for both years.

5. Addition of Payments Made to Shri Jagadish Devadiga for Assessment Years 2009-10 and 2010-11:
The AO disallowed transportation payments of ?2,51,00,000 and ?65,00,000 made to Shri Jagadish Devadiga for assessment years 2009-10 and 2010-11, based on his initial statements denying the transactions. The Tribunal observed that Shri Jagadish Devadiga later retracted his statements and provided supporting documents, including invoices and income tax returns. The AO did not allow the assessee to cross-examine Shri Jagadish Devadiga, violating the principles of natural justice. The Tribunal found no material evidence to prove that transportation services were not provided. Therefore, the Tribunal directed the deletion of the disallowances for both years.

Conclusion:
The Tribunal allowed all three appeals of the assessee, directing the deletion of the disputed additions for the assessment years 2008-09 to 2010-11. The order was pronounced in the open court on 29th November 2021.

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