2019 (2) TMI 2057 - AT - Income Tax

Key Tribunal Decisions on Tax Assessments & Disallowances: Legal Victory for Assessee

The Tribunal held that no additions can be made under Section 153A without incriminating material found during the search. The assessment framed under ... Assessment beyond the period of limitation prescribed - Assessment of Global Depository Receipt (GDR) received by the assessee from foreign entities - HELD THAT:- We find that the CIT(A) has categorically observed that the provisions of Income Tax Act empowers the AO to make a reference to the competent authority for collecting information with regard to the transactions executed by the assessee outside India and on account of that the AO referred the matter to the JS(FT&TR) in respect of the Global Depository Receipt (GDR) received by the assessee from foreign entities. The time frame for framing assessment was accordingly extended by the competent authority. We, therefore, do not find any merit on this issue and this ground of appeal of the assessee is hereby dismissed. Addition u/s 68 - proceeds of GDRs issued by the appellant holding the same as unexplained credit - HELD THAT:- We note that there is a contradictory observation of the Assessing officer and that of the CIT(A) in this respect. AO has observed that the promoters i.e Saluja family was holding 57.27% of the shares as on March 2009 and that after GDR’s issue came, that the holding of Saluja family came down to 19.45%. AO has tried to infer that because the shareholding of the promoter had come down after the GDR’s issue, it was not a company in which the public was interested and, hence, the proviso to section 68 of the Act was to be applied. CIT(A) has observed that from the details of shareholding of the promoter family given by the AO in the assessment order that it had increased from 95.30 lacs shares to 2.77 crores shares as a result of the conversion of GDR into shares. A perusal of the details / chart, as reproduced of the assessment order reveals that though after conversion, the number of shares had increased which was obvious, however, the percentage of holding i.e. from 57.27% before the issue of GDR’s had decreased to 8.37%, though the number of shares increased to 2.77 Crores. It is a matter of fact that once the GDR’s were cancelled for conversion to the shares, the number of shares will increase. The observation of the Ld. CIT(A) that shareholding has increased is against the facts on the file. As likely that once the GDR is issued, the shareholding of the promoter is likely to decrease. Revenue has failed to prove that the transaction relating to the GDR’s issue was a sham transaction or that it was money of the assessee which was routed through foreign channels through GDR’s. Despite of the fact that all the information which the assesse was supposed to provide was provided by the assessee and also that the information regarding the investors was also received by the AO from the foreign entities through competent authority, no adverse fact has been pointed out against the assessee. In view of this, we do not find any justification on the part of the lower authorities in making the impugned addition on assumption of facts and thereby on the basis of suspicion only. In view of this, this issue is allowed in favour of the assessee and the additions, if any, made on this ground are ordered to be deleted. CIT(A) framing / upholding the assessment observing that the principles of natural justice have been grossly violated by the AO - HELD THAT:- The assessment framed by the Assessing officer was not passed on the proper appreciation of the evidences. Even otherwise, in view of our observation made above, even despite information received during the appellate proceedings, no adverse view is established. Moreover, we have already discussed the issue in detail in our findings given above while adjudicating ground - In view of this, it is held that principles of natural justice also stood violated as the Assessing officer did not give proper opportunity to the assessee to rebut the allegations and the assessment was framed in a hurry as the limitation period to frame the assessment was expired. The assessment framed by the AO was thus bad in law because of denial of proper opportunity to the assessee, no substantial information available against the assessee as well as on account of violation of principles of natural justice. Disallowance of expenditure u/s 14A - additional income on account of disallowance u/s 14A of the Act for taxation in the return of income - HELD THAT:- It will be proper to restrict the disallowance u/s 14A for the respective assessment years upto the total tax exempt income earned by the assesse irrespective of the amount of disallowance offered/s 14A in the return of income. Assessment u/s 153A - Since we have already, while adjudicating ground No.1 of the appeal for assessment year 2010-11 have held that the additions made in the absence of any incriminating material in an assessment made u/s 153A of the Act, as per settled position of law, are not sustainable and thus the assessment framed u/s 153 A has been set aside, hence under the circumstances, the income assessed as per the original assessment framed/finalized for AY 2010-11 will remain sustained as such including the disallowance, if any made u/s 14A of the Act, subject to modification by any decision of any appellate authority on any issue in an appeal / rectification application in respect of originally framed assessment order dated 17.09.2017. Disallowance u/s 14A is restricted to the extent of tax exempt income earned by the assessee. Value of the short stock as undisclosed income - addition by estimating the profit at 25% as against declared by the appellant at 3.54% - HELD THAT:- CIT(A) has not pointed out any extra facts and circumstances of the case to enhance the estimation of the GP rate from 10% to 25%. In view of this, the action of the CIT(A) in this respect is set aside and we direct that the addition of unaccounted profit to be computed @ 10% as was applied by the Assessing officer on the amount of unaccounted sales in respect of stock shortage found in the course of search. This ground is accordingly partly allowed in favour of the assessee. Addition u/s 36(1)(iii) - addition @12% on the amounts advanced) out of interest account - HELD THAT:- CIT(A) while deleting the impugned addition has followed the decision of the Hon'ble Supreme Court in the case of ‘Hero Cycles Ltd.’ [2015 (11) TMI 1314 - SUPREME COURT] and in the case of ‘CIT Vs. Kaspons Associates’ [2015 (8) TMI 1277 - PUNJAB AND HARYANA HIGH COURT] and further this issue is squarely covered by the recent decision of the Coordinate Chandigarh Bench of the Tribunal in the case of ‘ACIT Vs. Janak Global Resources Pvt Ltd’ [2018 (12) TMI 902 - ITAT CHANDIGARH] wherein, the issue has been decided in favour of the assessee by considering the decision of the Hon'ble Apex Court in the case of ‘Hero Cycles [2015 (11) TMI 1314 - SUPREME COURT] and also findings arrived in the case of Avon Cycles Ltd. [2014 (9) TMI 207 - PUNJAB & HARYANA HIGH COURT]. Moreover the issue now is squarely covered by the latest decision of the Hon'ble Supreme Court in the case of ‘CIT (LTU) Vs. Reliance Industries Ltd.’ [2019 (1) TMI 757 - SUPREME COURT] Hence, we do not find any reason to interfere in the order of the CIT(A) on this issue. The ground raised by the Revenue, thus, stands dismissed. Disallowance on account of employees contribution of ESIC, FP and EPF u/s 36(1)(iii) - HELD THAT:- CIT(A) has given a categorical finding that he has gone through the details of payments made by the appellant and has found that all the payments have been made by the appellant on account of EPF and ESIC before the due date of filing of return of income. Since the Ld. CIT(A) has given a factual findings, after going through the details, hence, at this stage, we do not find it a fit case to refer the matter to the file of the Assessing officer to verify the details of payments. In view of this, we do not find any merit in the appeal of the Revenue on this issue also. Issues Involved:1. Legality of assessment under Section 153A without incriminating material.2. Period of limitation for framing assessment under Section 153A.3. Addition of GDR proceeds as unexplained credit under Section 68.4. Violation of principles of natural justice.5. Disallowance under Section 14A.6. Proportionate disallowance of interest expenditure under Section 36(1)(iii).7. Delayed deposit of employees' contribution to ESIC, EPF, and FP.8. Estimation of profit on account of stock shortage.9. Set off of loss declared in the return.10. Disallowance under Section 43B.Detailed Analysis:1. Legality of Assessment under Section 153A without Incriminating Material:The Tribunal held that no additions can be made under Section 153A if no incriminating material is found during the search. This is based on multiple judicial precedents, including 'CIT Vs. Kabul Chawla' and 'Principal CIT Vs. Meeta Gutgutia.' The Tribunal quashed the assessment framed under Section 153A for AY 2010-11 as no incriminating material was found during the search.2. Period of Limitation for Framing Assessment under Section 153A:The assessee argued that the assessment was beyond the period of limitation prescribed. The Tribunal found no merit in this issue, holding that the Assessing Officer had the authority to extend the time frame for framing the assessment by referring the matter to the competent authority.3. Addition of GDR Proceeds as Unexplained Credit under Section 68:The Tribunal found that the addition of GDR proceeds as unexplained credit was based on suspicion and assumptions rather than concrete evidence. The Tribunal noted that the assessee had provided sufficient evidence to establish the genuineness and creditworthiness of the transactions. The addition made by the Assessing Officer was deleted for all the relevant assessment years.4. Violation of Principles of Natural Justice:The Tribunal observed that the Assessing Officer violated the principles of natural justice by not providing adequate opportunity to the assessee to rebut the allegations. The assessment was framed hastily, without proper consideration of the assessee's replies and evidence. The Tribunal held that the assessment was bad in law due to the denial of proper opportunity and violation of natural justice principles.5. Disallowance under Section 14A:The Tribunal restricted the disallowance under Section 14A to the extent of the tax-exempt income earned by the assessee for the relevant assessment years. The Tribunal noted that the assessee had sufficient own funds to make the investments and that no interest-bearing funds were used.6. Proportionate Disallowance of Interest Expenditure under Section 36(1)(iii):The Tribunal upheld the CIT(A)'s decision to delete the disallowance of interest expenditure, citing the Supreme Court's decision in 'Hero Cycles Ltd.' and the jurisdictional High Court's decision in 'CIT Vs. Kapsons Associates.' The Tribunal found that the assessee had sufficient interest-free funds to cover the advances made.7. Delayed Deposit of Employees' Contribution to ESIC, EPF, and FP:The Tribunal upheld the CIT(A)'s decision to delete the disallowance for delayed deposit of employees' contributions, noting that the payments were made before the due date of filing the return of income. The Tribunal relied on the Supreme Court's decision in 'CIT vs. Alom Extrusions Ltd.'8. Estimation of Profit on Account of Stock Shortage:The Tribunal found that the CIT(A) had no basis to enhance the estimation of the GP rate from 10% to 25%. The Tribunal directed that the addition of unaccounted profit be computed at a 10% GP rate as applied by the Assessing Officer.9. Set off of Loss Declared in the Return:The Tribunal restored this issue to the CIT(A) for adjudication, as it was not addressed in the original order.10. Disallowance under Section 43B:The Tribunal restored this issue to the Assessing Officer for fresh adjudication, allowing the assessee to furnish receipts of payment.Conclusion:The Tribunal's detailed analysis addressed each issue comprehensively, ensuring that the legal principles and factual circumstances were thoroughly considered. The decisions were based on established judicial precedents and the specific facts of each case.