Section 153A assessment requires incriminating material for additions in completed assessments, opening balance deleted but voluntary income sustained

The ITAT Bangalore ruled on a section 153A assessment involving multiple additions. The tribunal held that without incriminating material, no addition can be made in completed assessments, citing jurisdictional HC precedents. For section 68 additions, the opening balance of Rs. 64,72,071 was deleted as it related to earlier assessment years with TDS already deducted, but sustained Rs. 39,85,184 addition as the assessee voluntarily offered unexplained income. Consultancy charges disallowance was reversed due to AO's failure to conduct proper enquiry. Interest deduction under section 36(1)(iii) worth Rs. 34,80,353 was upheld as disallowed since borrowed funds were used for interest-free advances rather than business purposes.

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Issues Involved:
1. Validity of search and assessment under Section 153A of the Income-tax Act.
2. Addition of Rs. 1,04,57,255/- for AY 2009-10.
3. Addition of Rs. 55,10,000/- for AY 2010-11.
4. Addition of Rs. 34,80,353/- for AY 2013-14.

Summary:

Issue 1: Validity of Search and Assessment under Section 153A
The appeals arose from the CIT(A) order for AYs 2009-10, 2010-11, and 2013-14, following a search action under Section 132 at the assessee's premises. The assessee contested the validity of the search and subsequent assessment under Section 153A, arguing there was no justification for the search warrant and that the conditions under Section 132(1) were not met. The Tribunal dismissed this ground, citing the Explanation to Section 132(1) inserted by the Finance Act, 2017, which prohibits questioning the reasons for the search. The Tribunal also referenced the jurisdictional High Court's decision in Prathibha Jewellery House Vs. CIT, which upheld the validity of such searches.

Issue 2: Addition of Rs. 1,04,57,255/- for AY 2009-10
The assessee challenged the addition of Rs. 1,04,57,255/- made by the AO under Section 68. The AO included this amount as income for AY 2009-10, despite the assessee's claim that it represented professional charges accrued in AY 2008-09. The CIT(A) upheld the addition, noting the assessee's failure to substantiate the claim with adequate evidence. The Tribunal partially allowed the appeal, accepting the assessee's explanation for Rs. 64,72,071/- but sustaining the addition of Rs. 39,85,184/- as the assessee could not explain its accrual year.

Issue 3: Addition of Rs. 55,10,000/- for AY 2010-11
The AO disallowed Rs. 55,15,000/- claimed as consultancy charges, doubting the genuineness of the services availed and the absence of a service agreement. The Tribunal reversed the lower authorities' decision, stating that the AO did not carry out necessary inquiries to prove the expenditure as bogus and allowed the assessee's claim.

Issue 4: Addition of Rs. 34,80,353/- for AY 2013-14
The AO disallowed the interest claim of Rs. 34,80,353/- under Section 36(1)(iii), arguing that the borrowed funds were not used for business purposes. The CIT(A) upheld this disallowance. The Tribunal agreed with the lower authorities, noting that the assessee could not justify the use of borrowed funds for business purposes and dismissed the appeal.

Conclusion:
The appeals for AYs 2009-10 and 2010-11 were partly allowed, while the appeal for AY 2013-14 was dismissed. The Tribunal upheld the validity of the search and the subsequent assessment under Section 153A, sustained part of the additions made by the AO, and allowed the assessee's claim for consultancy charges for AY 2010-11.

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