2020 (3) TMI 574 - AT - Income Tax

Tribunal overturns tax additions, underscores importance of investigations and natural justice.

Rukmani Agencies Private Limited Versus D.C.I.T., Central Circle-5 (1), Mumbai

Rukmani Agencies Private Limited Versus D.C.I.T., Central Circle-5 (1), Mumbai - TMI Issues Involved:1. Validity of additions made under section 143(3) read with section 153A of the Income Tax Act, 1961.2. Addition of Rs. 22,10,000 under section 68 of the Income Tax Act.3. Addition of Rs. 16,575 as unexplained expenditure.4. Disallowance under section 14A read with Rule 8D of the IT Rules, 1962.5. Alleged violation of principles of natural justice.Issue-wise Detailed Analysis:1. Validity of Additions under Section 143(3) read with Section 153A:The Tribunal examined the validity of the additions made under section 143(3) read with section 153A of the Income Tax Act, 1961. The search and seizure action under section 132(1) was conducted on the Anand Rathi Group on 24/09/2013. The AO added Rs. 22,10,000 under section 68 and Rs. 16,575 as unexplained expenditure. The Tribunal referred to the order in the case of other group concerns of Anand Rathi Group, where similar additions were deleted. The Tribunal found that the AO did not conduct further investigations such as issuing summons under section 131, and the additions were not supported by incriminating material found during the search.2. Addition of Rs. 22,10,000 under Section 68:The Tribunal reviewed whether the assessee had discharged its onus under section 68 by proving the identity, genuineness of transactions, and creditworthiness of the parties. The assessee provided various documents, including share application forms, board resolutions, bank statements, PAN cards, and financial statements. The Tribunal noted that the AO did not conduct further investigations after issuing notices under section 133(6). The Tribunal held that the AO's reliance on third-party statements without providing an opportunity for cross-examination violated principles of natural justice. The Tribunal cited several case laws, including CIT vs. Lovely Exports Pvt Ltd, to support its decision to delete the addition.3. Addition of Rs. 16,575 as Unexplained Expenditure:The Tribunal found that since the addition of Rs. 22,10,000 under section 68 was deleted, the consequent addition of Rs. 16,575 as unexplained expenditure was also incorrect. The Tribunal directed the AO to delete this addition.4. Disallowance under Section 14A read with Rule 8D:The AO made a disallowance of Rs. 28,114 under section 14A read with Rule 8D. The Tribunal observed that the disallowance was made without reference to any incriminating material found during the search. The Tribunal referred to the decision of the Bombay High Court in CIT vs. Continental Warehousing Corporation, which held that in the absence of incriminating material, no additions could be made in assessments framed under section 153A. The Tribunal concluded that the AO erred in making the disallowance and directed its deletion.5. Alleged Violation of Principles of Natural Justice:The Tribunal noted that the AO relied on third-party statements to make additions but did not provide the assessee with copies of these statements or an opportunity for cross-examination. This was deemed a violation of the principles of natural justice. The Tribunal emphasized that reliance on third-party information requires providing the assessee with an opportunity to cross-examine the person who made the statement, as supported by the Supreme Court's decision in Kishanchand Chellaram vs. CIT.Conclusion:The Tribunal allowed the appeal of the assessee, deleting the additions made under section 68 and section 14A, and the consequent unexplained expenditure. The Tribunal emphasized the importance of proper investigation and adherence to principles of natural justice in tax assessments.