2022 (2) TMI 866 - AT - Income Tax

Validity of Assessment u/s 153C - Whether incriminating material found during the search? - HELD THAT - The original assessment u/s.143(3) of the Act was completed on 09.03.2017 and the assessment was framed and business loss was determined subsequent to search notice u/s.153C was issued and served on the assessee. We observed from the notice u/s.153C of the Act that the issues raised in the notice and the additions made by the AO in assessment order are not the same in the Assessment Order AO analysed the financial statements and disallowed certain expenditures which according to the AO should have been charged to work-in-progress accordingly he made addition. After careful consideration of the order passed by the Ld.CIT(A) and Ld.CIT(A) gave a finding that the addition made by the Assessing Officer in the Assessment Order are not based on any incriminating material found during the search it is in line with the decision of the Hon ble Jurisdictional High Court in the case of CIT v. Continental Warehousing All Cargo Global logistics 2015 (5) TMI 656 - BOMBAY HIGH We do not find any reason to interfere with the finding of the Ld.CIT(A) as per which Assessing Officer has not made the addition based on any incriminating material found during search. Therefore ground raised by the revenue is dismissed.

Summary

Issues Involved:
1. Validity of additions made under Section 153C without incriminating material.
2. Justification of additions made by the Assessing Officer (AO) regarding brokerage, sales and marketing expenses, finance cost, and legal and professional fees.

Detailed Analysis:

1. Validity of Additions Made Under Section 153C Without Incriminating Material
The primary issue revolves around whether the AO can make additions under Section 153C of the Income Tax Act without any incriminating material found during the search. The original assessment was completed under Section 143(3) on 09.03.2017, determining a business loss of ?2,27,16,946/-. A subsequent search led to the issuance of a notice under Section 153C. The AO made additions not based on any incriminating material but on an analysis of financial statements, disallowing certain expenditures and charging them to work-in-progress.

The Ld. CIT(A) found that the AO did not bring any new facts, insights, revelations, or incriminating documents from the search to justify revisiting the earlier order. The Ld. CIT(A) allowed the appeal, stating that the AO cannot reassess without incriminating material. This aligns with the decision of the Hon'ble Jurisdictional High Court in CIT v. Continental Warehousing & All Cargo Global Logistics, which the revenue has not accepted and is pending before the Hon'ble Apex Court.

The Tribunal upheld the Ld. CIT(A)'s decision, emphasizing that the additions were not based on any incriminating material found during the search, thus dismissing the revenue's appeal.

2. Justification of Additions Made by the AO
The AO disallowed expenses related to brokerage (?1,30,00,000/-), sales and marketing (?1,24,53,166/-), finance cost (?11,86,093/-), and legal and professional fees (?42,77,037/-), totaling ?3,09,16,296/-. These were claimed as revenue expenditures by the assessee but were disallowed by the AO, who argued they should be charged to work-in-progress.

The assessee contended that these expenses were not directly related to the project and were correctly claimed as revenue expenditures per the Accounting Standards issued by the Institute of Chartered Accountants. The Ld. CIT(A) found that the AO did not bring any new incriminating material to justify these additions and allowed the appeal.

The Tribunal noted that the original assessment under Section 143(3) did not disallow these expenses and that the AO's additions were not based on any new incriminating material found during the search. Thus, the Tribunal upheld the Ld. CIT(A)'s decision, dismissing the revenue's appeal on this ground as well.

Conclusion:
The Tribunal dismissed the revenue's appeal, upholding the Ld. CIT(A)'s decision that the AO cannot make additions under Section 153C without any incriminating material found during the search. The expenses disallowed by the AO were not based on any new incriminating material, and thus, the additions were unjustified.