2019 (11) TMI 587 - AT - Income Tax

Tribunal sets aside AO's addition for A.Y. 2012-13 without incriminating material, upholds AO's decision for A.Y. 2013-14 & 2014-15.

The Tribunal allowed the appeal for Assessment Year (A.Y.) 2012-13, setting aside the addition made by the Assessing Officer (AO) under section 153C ... Assessment under section 153C - Concluded assessment and limitation under section 143(2) - Incriminating material requirement for additions in concluded assessment - Allowability of deduction under income from other sources - Taxation of income disclosed from seized documents - Accrued income versus irrecoverable advancesAssessment under section 153C - Concluded assessment and limitation under section 143(2) - Incriminating material requirement for additions in concluded assessment - Allowability of deduction under income from other sources - Validity of disallowance of rent claimed as deduction in A.Y.2012-13 when proceedings were initiated under section 153C after the assessment had become concluded and no incriminating material relating to the rent was seized. - HELD THAT: - The Tribunal examined the proviso to section 153C and held that for a person other than the searched person the reference date for reckoning the initiation of proceedings is the date on which the Assessing Officer having jurisdiction received the books/documents seized. In the present case the case was notified to the AO by F.No.62/Juris/CIT/Rjy/2013-14 dated 03.03.2014, which is the operative date for reckoning the search for the assessee. The assessee's regular assessment for A.Y.2012-13 had become concluded (time for notice under section 143(2) expired on 30.09.2013) before the seized material was received by the AO. Absent any incriminating material seized specifically relating to the rent payment (which was recorded in regular books and declared in the original return), the AO could not make additions in a concluded assessment merely by invoking proceedings under section 153C. The Tribunal agreed with the assessee's reliance on precedent and found no material to show that the seized documents were handed over to the AO prior to the notification date; hence the addition was unsustainable. [Paras 9]Addition of rent disallowed by the AO is deleted; appeal allowed for A.Y.2012-13.Assessment under section 153C - Taxation of income disclosed from seized documents - Accrued income versus irrecoverable advances - Whether the amount allegedly receivable (including interest) from GSL Educational Society for A.Y.2013-14 could be reduced from the returned income on the basis of the society's later letter expressing inability to pay. - HELD THAT: - The Tribunal recorded that incriminating material seized during search showed the assessee had advanced sums to the society and was to receive interest; the assessee admitted those sums as income in the return filed in response to the section 153C notice. The AO computed a difference and had proposed an addition which was subsequently withdrawn on the basis of the society's letter; however, the larger sum admitted in the return represented accrued income as per the accounting system and the seized material. A subsequent letter dated 28.01.2016 (relating to FY 2016-17) stating incapacity to pay does not alter the taxability of accrued income in the impugned assessment year. Mere inability or decision of the society not to pay would not convert accrued income into an allowable deduction or extinguish the tax consequence; write off or treatment as bad debt must follow the statutory procedure in appropriate subsequent years. Consequently, the Tribunal declined to reduce the returned income for the impugned year. [Paras 11, 14]Assessee's request to reduce the returned income by the alleged irrecoverable sum is rejected; appeal dismissed for A.Y.2013-14.Assessment under section 153C - Accrued income versus irrecoverable advances - Whether the request to reduce the sum alleged to be due from GSL Educational Society could be entertained for A.Y.2014-15 where the assessment accepted the income returned. - HELD THAT: - For A.Y.2014-15 the AO accepted the returned income and there was no addition to disturb. The contention to reduce the returned income by the amount relevant to A.Y.2013-14 was held to be irrelevant to the impugned assessment year. The Tribunal accordingly found no grounds to interfere with the assessment that accepted the return. [Paras 15, 18]Appeal dismissed for A.Y.2014-15; assessment accepting returned income upheld.Final Conclusion: Tribunal allowed the appeal for A.Y.2012-13 by deleting the addition of rent made in proceedings under section 153C (no incriminating material handed to AO before assessment was concluded), and dismissed the appeals for A.Y.2013-14 and A.Y.2014-15 refusing to reduce returned income by the alleged irrecoverable amounts from GSL Educational Society. Issues Involved:1. Validity of addition made by the Assessing Officer (AO) under section 153C without incriminating material.2. Addition of Rs. 7,36,053/- towards rent paid for business premises.3. Reduction of Rs. 56,92,455/- from the returned income due to the inability of GSL Educational Society to make payment.Issue-Wise Detailed Analysis:1. Validity of Addition under Section 153C Without Incriminating Material:The assessee filed a return of income for A.Y. 2012-13 on 30.09.2012. Subsequently, a search was conducted in the case of M/s G.S.L. Educational Society on 25.07.2013, during which incriminating material related to the assessee was found. The AO initiated proceedings under section 153C and issued a notice on 23.07.2014. The assessee argued that the assessment for A.Y. 2012-13 was concluded by 30.09.2013, and thus, the AO could not make additions without incriminating material. The Tribunal agreed, stating that the AO is not permitted to make additions without incriminating material in concluded assessments. The Tribunal set aside the order of the CIT(A) and deleted the addition made by the AO.2. Addition of Rs. 7,36,053/- Towards Rent Paid for Business Premises:The AO disallowed the deduction of Rs. 7,36,053/- claimed under section 57 of the Act, as it was not an allowable deduction. The CIT(A) confirmed this disallowance. During the appeal, the assessee contended that the payment of rent was claimed in the regular return of income and no incriminating material was found during the search. The Tribunal, referring to the case of Y.V. Anjaneyulu Vs. DCIT, concluded that the AO could not make the addition without incriminating material and deleted the disallowance.3. Reduction of Rs. 56,92,455/- from Returned Income (A.Y. 2013-14):The assessee requested to reduce Rs. 56,92,455/- from the returned income, arguing that GSL Educational Society expressed its inability to make the payment. The AO did not reduce the amount, and the CIT(A) upheld the AO's decision. The Tribunal noted that the assessee admitted the income based on incriminating material and that the income should be computed as per the provisions of the Act. The Tribunal held that merely because the society decided not to make the payment, the accrued income could not be reduced. The Tribunal dismissed the appeal, stating that the assessee should follow the procedure to collect the outstanding dues and write off as bad debt in subsequent years.4. Reduction of Rs. 56,92,455/- from Returned Income (A.Y. 2014-15):For A.Y. 2014-15, the AO completed the assessment accepting the income returned by the assessee. The assessee again requested to reduce Rs. 56,92,455/-, but the CIT(A) dismissed the appeal as the AO did not make any addition. The Tribunal upheld the CIT(A)'s decision, stating that the issue was relevant to A.Y. 2013-14 and had no relevance for A.Y. 2014-15.Conclusion:- The appeal for A.Y. 2012-13 (I.T.A.No.546/Viz/2018) is allowed.- The appeals for A.Y. 2013-14 (I.T.A.No.547/Viz/2018) and A.Y. 2014-15 (I.T.A.No.548/Viz/2018) are dismissed.Order Pronounced:The order was pronounced in the open court on 8th November, 2019.