2022 (6) TMI 335 - AT - Income Tax

Assessment u/s 153A - incriminating material seized for the purpose of framing assessment or not? - HELD THAT - Additions made by the AO dehors any reference to or foundation in any incriminating seized materials are not sustainable for any of the assessment year under appeal, therefore, he deleted the impugned additions/disallowance - See KABUL CHAWLA 2015 (9) TMI 80 - DELHI HIGH COURT . Addition made on account of Scrap Handling charges - HELD THAT - As it is not the case of the Department that the assessee has not paid the rent but paid on the last day of the first year. The ld. AO could not prove this as bogus expenditure, whereas the assessee has proved that it required open yard to place the imported goods of its customers for a period of 30 days, which is already collected from its customers as handling charges. In the facts of the above circumstances of the case, we do not find any infirmity in the order passed by the ld. CIT(A) and therefore confirm the same and dismiss the Ground No. 1 raised by the Revenue. Disallowance of interest u/s. 36(1)(iii) - assessee had made interest free advances out of interest bearing funds - Proof of business expediency - HELD THAT - CIT(A) correctly held that it was clearly noticeable from the balance-sheet extracted for all the assessment years under appeal that thematic average of interest free advance was far less than the available interest free funds, and the borrowed funds also appeared to have been deployed in closing stock, trade receivables and business assets for which primarily the funds have been borrowed. CIT(A) held that the advances prima facie appeared to have been made out of interest free funds available with the assessee; secondly, the AO has not discharged onus of establishing clear cut and direct nexus between the interest bearing loans and interest free advances so as to justify disallowance in the light of the ratio laid down in the case of Reliance Utility 2009 (1) TMI 4 - BOMBAY HIGH COURT and Hero Cycles 2015 (11) TMI 1314 - SUPREME COURT and no examination of the accounts of the recipients could yield such nexus, and therefore, as a matter fact, it was to be held that such a nexus did not exist warranting any disallowance under section 36(1)(iii) of the Act; thirdly, there was clear and self-evident mutuality and business expediency in sizable inter-se transactions between the assessee and recipients of funds, and further that there did not appear any noticeable personal or non-business use by recipients of the funds received interest free and thus, on fact of the case as also in view of the law as explained by the Supreme Court in SA Builders and Hero Cycles (supra), there was no case to invoke the provisions of section 36(1)(iii) of the Act for making any disallowance - Decided in favour of assessee.

Issues Involved:
1. Deletion of additions made on account of handling charges for scrap sale.
2. Deletion of additions made on account of godown rent expenses.
3. Deletion of additions made on account of godown electricity expenses.
4. Deletion of additions made on account of handling, shifting, and other charges.
5. Deletion of disallowance of interest under section 36(1)(iii) of the Income Tax Act.
6. Validity of assessment under section 153A of the Income Tax Act.

Detailed Analysis:

1. Deletion of Additions Made on Account of Handling Charges for Scrap Sale:
The appeals filed by the Revenue challenged the deletion of additions made on account of handling charges for scrap sale by the CIT(A). The CIT(A) had deleted these additions on the grounds that no incriminating material was found during the search, and the assessment orders were not based on any seized material. The Tribunal upheld the CIT(A)’s decision, noting that the AO did not rely on any incriminating material seized during the search for framing the assessment under section 153A.

2. Deletion of Additions Made on Account of Godown Rent Expenses:
The CIT(A) had deleted the additions made on account of godown rent expenses, and the Revenue appealed against this decision. The Tribunal found that the AO had not produced any incriminating material to support the additions and upheld the CIT(A)’s decision to delete these additions.

3. Deletion of Additions Made on Account of Godown Electricity Expenses:
Similar to the godown rent expenses, the additions made on account of godown electricity expenses were deleted by the CIT(A) due to the absence of incriminating material. The Tribunal upheld this deletion, emphasizing that the AO did not rely on any seized material for the assessment.

4. Deletion of Additions Made on Account of Handling, Shifting, and Other Charges:
The CIT(A) had deleted the additions made on account of handling, shifting, and other charges, and the Revenue’s appeal against this deletion was dismissed by the Tribunal. The Tribunal reiterated that no incriminating material was found during the search, and the AO had not relied on any such material for the assessment.

5. Deletion of Disallowance of Interest Under Section 36(1)(iii) of the Income Tax Act:
The CIT(A) had deleted the disallowance of interest under section 36(1)(iii) of the Act, which was challenged by the Revenue. The Tribunal upheld the CIT(A)’s decision, noting that the assessee had sufficient interest-free funds to cover the interest-free advances. The Tribunal also found that the AO had not established a clear nexus between the interest-bearing loans and the interest-free advances. The Tribunal relied on various judgments, including those of the Supreme Court and High Courts, to support its decision.

6. Validity of Assessment Under Section 153A of the Income Tax Act:
The assessee challenged the validity of the assessments under section 153A on the grounds that no incriminating material was found during the search. The CIT(A) and the Tribunal both upheld this challenge, noting that the AO had not relied on any seized material for the assessments. The Tribunal cited several judgments, including those of the jurisdictional High Court and the Delhi High Court, to support its decision that additions or disallowances under section 153A can only be made based on incriminating material found during the search.

Conclusion:
The Tribunal dismissed the Revenue’s appeals for the assessment years 2006-07, 2007-08, and 2009-10, and upheld the CIT(A)’s deletions of the various additions and disallowances. The Tribunal emphasized that the AO had not relied on any incriminating material seized during the search for making the additions and disallowances. The Tribunal also dismissed the Cross Objections filed by the assessee, as they were merely in support of the CIT(A)’s order and there was no grievance to the assessee after the dismissal of the Revenue’s appeals.

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