2022 (7) TMI 691 - AT - Income Tax

Assessment u/s 153A - Addition of unapproved purchases based on peak calculation - HELD THAT - As brought on record, notice u/s 133(6) were sent to the parties from whom assessee had made purchases which has not been disputed and no addition has been made in those cases; and in case of Vitrag Jewels, no notice u/s 133(6) was issued. AO came to know about this information only on 24.03.2014 and order was passed in 31.03.2014, therefore he had no occasion to issue the notice to the said party. The entire premise of the AO is coloured by the fact that assessee had made purchases from the entities controlled by Rajendra Jain Group and other accommodation entry provider group. He had not even examined whether assessee had made purchases from any of these parties which has been mentioned in assessment order. All other parties to whom notices were issued u/s 133(6) have given their response and no addition has been made by the AO. Thus, the entire premise for making addition has no legs to stand once the purchase made from Vitrage Jewels, AO has not made any enquiry or sent notice u/s 133(6). Once the assessee had filed all the details of purchases, stock register and corresponding sales and the entire transaction are through banking channel and there is no discrepancy found either in the quantity of purchases or sales, then the addition on some hypothetical working peak investment as done by him cannot be sustained. The same is directed to be deleted. Otherwise also, the aforesaid addition is not based on any incriminating documents or material found during the course of search, albeit is has been made on the basis of search conducted after more than 2 years in case of different persons and based on certain information received on 24.03.2014, i.e., in respect of transaction of Rajendra Jain Group of companies. AO has sought to make the impugned addition which cannot be held to be on the basis of any seized or incriminating material found during the course of search of the assessee. Accordingly, the same is outside purview and the addition made u/s 153A is unabated assessment. Thus, on this ground also, the addition cannot be sustained. Disallowance made to the labour contractor - As documents corroborate that these labours had worked for assessee and have been employed by these labour contractors to work for the assessee. And also go to prove the genuineness of the payments to the labourers and thus same cannot be disallowed. Thus, on these facts and circumstances, the payment made to the labour contractors cannot be held to be non-genuine. Accordingly, the addition made by the AO on account of disallowance paid to labour contractor is deleted. Bogus purchases - HELD THAT - AO has completely gone on a very wrong premise to observe that addition is being made, because the parties belong to Rajendra Jain Group and other groups. Here in this case, the information itself was received on 24.03.2014 and the assessment order passed on 31.03.2014. Thus, there was no occasion to send the notice u/s 133(6) to these parties. Whatever observation he has made with respect to notice u/s 133(6) which was made to the other parties with whom purchases has been debited, has been verified and confirmed by the parties on which, no addition has been made by the AO. In so far as genuineness of the purchases of these parties, we find from the perusal of documents enclosed in the paper book clearly establishes the purchases made are genuine and without any inquiry by the AO done, addition cannot be sustained. In any case, assessments for AY 2007-07 and 2008-09 had attained finality during the date of search and there was not pending assessment, therefore no addition could have been made without any incriminating material found during the course of search and the aforesaid addition on account of purchase is not based on any incriminating documents found during search. Accordingly, the same cannot be sustained on this ground also. Disallowance of legal and professional fees - AO had made the disallowance on the ground that information has been received from the DCIT, CC-1, Ernakulam - HELD THAT - We find that there is no dispute that the above 2 persons were legal professionals with whom assessee had entered into an agreement of retainership for rendering services for which they have raised their invoices and payments have been made through banking channel after deducting TDS. The details of the invoices with regard to both the aforesaid parties have been filed which are not in dispute. Now, whether rendering of the legal services had yielded any result or asking for any proof of any legal advice is immaterial. If there was a proper agreement of retainership for legal advice and for statutory compliances is given to certain professionals for rendering legal services and they have raised the bills and are completely unrelated parties, then disallowance cannot be made on the ground that assessee had not proved any rendering of any legal advice. Assessee has already explained the above reason as to why assessee had sought their engagement. Therefore, such addition is directed to be deleted. Assessee appeal allowed.

Summary

Issues Involved:
1. Addition on account of Labour Charges and Bogus Purchases under Section 153A.
2. Addition of Labour Charges paid to specific parties.
3. Disallowance of purchases from M/s. Vitrag Jewels as 'accommodation entry.'
4. Disallowance of Legal and Professional fees paid.
5. Jurisdiction and validity of additions under Section 153A.

Detailed Analysis:

1. Addition on account of Labour Charges and Bogus Purchases under Section 153A:
The assessee contested the additions made by the Commissioner of Income-tax (Appeals) on the grounds that no incriminating documents were found during the search. The Tribunal noted that the assessment for AY 2006-07 had already attained finality on the date of the search and thus, any addition under Section 153A must be based on incriminating material found during the search. The Tribunal found that the additions were not based on such material and thus, were outside the scope of Section 153A. Consequently, the additions were deemed without jurisdiction and bad in law.

2. Addition of Labour Charges paid to specific parties:
The assessee provided full details of labour charges paid to M/s. Kamal Diamonds, M/s. S.R. Diamonds, and M/s. Vishala Diamonds. The Tribunal noted that the payments were made through banking channels, TDS was deducted, and there was no involvement of cash. The Tribunal also considered the compliance with labour laws, including EPF and ESIC, which corroborated the genuineness of the payments. The Tribunal concluded that the disallowance of Rs. 2,73,76,892/- was unjustified and deleted the addition.

3. Disallowance of purchases from M/s. Vitrag Jewels as 'accommodation entry':
The assessee argued that the purchases from Vitrag Jewels were genuine and supported by invoices, stock records, and bank statements. The Tribunal found that no notice under Section 133(6) was issued to Vitrag Jewels, and the addition was based on information received after the assessment period. The Tribunal held that the addition was not based on any incriminating material found during the search and thus, was outside the purview of Section 153A. The Tribunal deleted the addition of Rs. 33,56,044/-.

4. Disallowance of Legal and Professional fees paid:
The assessee provided agreements, invoices, bank statements, and TDS certificates for the legal and professional fees paid to Mr. Shreenijin P.V. and Ms. Soni K.B. The Tribunal noted that the payments were made under a retainership agreement for legal services, and the professionals were unrelated parties. The Tribunal held that the disallowance was unjustified as the services were rendered, and the payments were genuine. The Tribunal deleted the disallowance of Rs. 18,00,000/- for AY 2007-08 and Rs. 24,00,000/- for AY 2009-10.

5. Jurisdiction and validity of additions under Section 153A:
The Tribunal emphasized that additions under Section 153A must be based on incriminating material found during the search. In the cases of AY 2007-08 and 2008-09, the Tribunal found that the assessments had attained finality, and no incriminating material was found during the search. Therefore, the additions were outside the scope of Section 153A and were deleted.

Conclusion:
The Tribunal allowed the appeals filed by the assessee for AYs 2006-07, 2007-08, 2008-09, and 2009-10, deleting the additions made on account of labour charges, bogus purchases, and legal and professional fees. The Tribunal held that the additions were not based on incriminating material found during the search and thus, were outside the scope of Section 153A.