2023 (9) TMI 1420 - AT - Income Tax

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

Reddy Sangeetha Versus Deputy Commissioner of Income-tax, Central Circle-1 (3) Bengaluru

The ITAT Bangalore ruled on a section 153A assessment involving multiple additions. The tribunal held that without incriminating material, no addition can ... Assessment u/s 153A - Addition u/s 68 - argument of the ld. A.R. that there is no seized material to sustain addition while framing u/s 153A - HELD THAT:- We are of the opinion that in case of completed assessment/unabated assessment, in absence of any incriminating material, no addition can be made by the AO and the ld. AO has no jurisdiction to reopen the completed assessment. For this proposition, we place reliance on the judgement of jurisdictional High Court in the case of Delhi International Airport Pvt. Ltd [2021 (11) TMI 928 - KARNATAKA HIGH COURT] and Kabul Chawla [2015 (9) TMI 80 - DELHI HIGH COURT] Addition u/s 68 - Admittedly, in this case, there was no seized material suggesting these additions. This has been shown by assessee in its balance sheet filed by assessee before ld. AO and also it is also admitted fact that an amount of Rs. 64,72,071/- shown as opening balance as on 1.4.2008 and there was increase of Rs. 39,85,184/- in capital account of the assessee. The contention of the ld. D.R. is that this income has been received by the assessee in the assessment year under consideration and same to be taxed. In our opinion, opening capital account balance as on 1.4.2008 cannot be taxed in the assessment year under consideration though it was received in the assessment year under consideration as the TDS for the same has been made in the earlier assessment year, which shows the amount accrued in earlier assessment years. Regarding the balance amount of Rs. 39,85,184/-, in our opinion, since the assessee has admitted that he is not able to explain the year in which it was received or accrued and voluntarily offered as income in the assessment year 2009-10, being so, we have no hesitation in sustaining this addition of Rs. 39,85,184/-. Addition of payment of consultancy charges - invoices provided by the assessee do not indicate the nature of services availed - assessee claimed expenditure as hewants to develop a big residential project by entering into Joint Development Agreement with Manyata Developers in the area Seegehalli and in order to develop a detailed project report and mobilise the funds from various financial institutions, assessee incurred this expenditure and the TDS also made on this expenditure. However, the AO doubted availing the services and payment for those services - HELD THAT:- AO has not carried out any enquiry in this regard. When he disbelieved the contention of the assessee, the burden cast upon the AO to carry out necessary enquiry to suggest that the claim of expenditure by assessee is bogus. The rejection of this expenditure as not incurred by assessee is only on surmises and conjectures, which cannot be upheld. More so, there was no material in the hands of AO to suggest that this expenditure is of bogus nature. Hence, we are not in a position to uphold the orders of the lower authorities. Accordingly, we reverse the order of the lower authorities and allow the ground of assessee. Deduction u/s 36(1)(iii) - assessee explained that the said claim was made as the borrowed funds were used for the purpose of business - AO noticed that the assessee has given huge advances to sister concerns and related parties and the assessee has not explained the need for borrowed funds and held that assessee is not entitled for deduction u/s 36(1)(iii) - HELD THAT:- As assessee has used the money borrowed for acquisition of property at Singapore. However, there was another term loan availed from Vysya Co-operative Bank on which assessee paid the interest in this assessment year under consideration. The assessee is not able to explain the purpose of borrowing that term loan. Assessee made interest free advance to various parties, namely M/s. Embassy Services Pvt. Ltd., Manyata Developer Pvt. Ltd., Reddy Veeranna, Reddy Snehalata and Sundry advances. The assessee is not able to explain the sources to make interest free advance to these parties. Hence, it should be considered that assessee has used the borrowed funds from Vysya Co-operative Bank to advance these parties on which assessee claimed interest in its profit & loss account in the assessment yar under consideration at Rs. 34,80,353/-, which cannot be allowed u/s 36(1)(iii) of the Act, since the loan has been borrowed for the purpose of business and not satisfy the conditions laid down in section 36(1)(iii) of the Act. Accordingly, the disallowance made by the lower authorities is justified. This ground of appeal of the assessee is dismissed. Levy of interest u/s 234A & 234B - In our opinion, this ground is consequential and mandatory in nature and is to be charged accordingly. This ground is dismissed. However, the assessee is at liberty to seek waiver before DG/CCIT, if so advised. 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 153AThe 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 2009-10The 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 2010-11The 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 2013-14The 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.