2018 (2) TMI 1206 - AT - Income Tax

Tribunal rules in favor of Assessee, deems assessment order beyond jurisdiction

The Tribunal allowed the Assessee's appeal, deleting disallowances made under Sections 40A(3) and finance charges on the loan from the parent company, as ... Assessment u/s 153A - disallowance u/s. 40A(3) - Held that:- Since assessee has not claimed any expenditure, therefore, no disallowance can be made during the year under consideration. See M/s Galaxy Dwellers (P) Ltd. vs. DCIT [2017 (11) TMI 112 - ITAT DELHI]. Hon’ble Punjab & Haryana High Court in the case of Gurdas Garg vs. CIT (2015 (8) TMI 569 - PUNJAB & HARYANA HIGH COURT) has held that where genuineness of transactions made in cash in excess of ₹ 20,000 was not disbelieved by authorities, same cannot be disallowed under Section 40A(3). - Decided in favour of assessee. Disallowance being finance charges on loan taken from parent company - Held that:- This addition is not tenable because in this case no incriminating material was found during the course of search, hence, this ground is also allowed in favour of the assessee and against the Revenue. Issues Involved:1. Deletion of addition made without incriminating material found during the search under Section 132 of the Income Tax Act, 1961.2. Disallowance of Rs. 32,87,330/- under Section 40A(3) by treating it as inventory and reducing the cost of land.3. Disallowance of Rs. 28,29,600/- as finance charges on loan from the parent company.4. Validity of the assessment order and disallowances made without adequate opportunity of hearing and based on incorrect facts.5. Charging of interest under Section 234B of the Income Tax Act, 1961.Issue-wise Detailed Analysis:1. Deletion of Addition Made Without Incriminating Material:The Assessee argued that the disallowance of Rs. 32,87,330/- under Section 40A(3) was beyond the jurisdiction of the AO as no incriminating material was found during the search. The Assessee relied on several case laws, including the ITAT, 'C' Bench, New Delhi decision in the case of M/s Galaxy Dwellers (P) Ltd. vs. DCIT, where similar facts were involved. The Tribunal noted that the original assessment for the relevant year had concluded, and no addition could be made in the absence of incriminating material. The Tribunal cited the Hon'ble Delhi High Court's judgment in PCIT vs. Meeta Gutgutiya, which emphasized that no addition could be made without incriminating material. Thus, the Tribunal concluded that the disallowance under Section 40A(3) was without jurisdiction and deserved to be deleted.2. Disallowance of Rs. 32,87,330/- Under Section 40A(3):The Tribunal examined whether the disallowance under Section 40A(3) was justified. The Assessee contended that the transaction was recorded in the books, and the payees were identified, with no doubt about the genuineness of the payments. The Tribunal referred to various judgments, including Attar Singh Gurmukh Singh vs ITO and CIT vs CPL Tannery, which held that disallowance under Section 40A(3) should not be made when the genuineness of the payment is not doubted. The Tribunal concluded that the disallowance was not sustainable as the payments were genuine and recorded in registered purchase deeds.3. Disallowance of Rs. 28,29,600/- as Finance Charges:The Tribunal addressed the disallowance of finance charges on a loan from the parent company. The Assessee argued that no incriminating material was found during the search to justify this disallowance. The Tribunal agreed, noting that the addition was not tenable without incriminating material. Consequently, this ground was allowed in favor of the Assessee.4. Validity of the Assessment Order and Disallowances:The Assessee claimed that the assessment order and disallowances were contrary to law and facts, void ab initio, beyond jurisdiction, and made without adequate opportunity of hearing. The Tribunal's findings on the first three issues implicitly addressed these concerns, as the disallowances were found to be unjustified and without jurisdiction.5. Charging of Interest Under Section 234B:The Assessee contested the charging of interest under Section 234B. The Tribunal did not provide a detailed analysis on this issue, but given the resolution of the primary disallowances in favor of the Assessee, the charging of interest under Section 234B would likely be impacted accordingly.Conclusion:The Tribunal allowed the Assessee's appeal, deleting the disallowances made under Sections 40A(3) and the finance charges on the loan from the parent company, as they were made without incriminating material found during the search. The assessment order and related disallowances were found to be beyond jurisdiction and not sustainable. The appeal was allowed in favor of the Assessee.