Tribunal allows appeals, rejects disallowance of interest payments, citing lack of incriminating material.

The tribunal allowed the appeals of the assessee, finding that the orders passed under Section 143(3) read with Section 153A were not justified due to the absence of incriminating material. Additionally, the tribunal held that the development agreements presented were valid evidence of the business purpose of the advances, and the disallowance of interest payments was deemed unwarranted. Consequently, the tribunal directed the AO to delete the disallowance of interest payments for the relevant assessment years.

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Issues Involved:
1. Validity of the order passed under Section 143(3) read with Section 153A of the Income Tax Act, 1961.
2. Consideration of development agreement as additional evidence.
3. Opportunity to present additional evidence.
4. Disallowance of interest payment.

Issue-Wise Detailed Analysis:

1. Validity of the Order Passed Under Section 143(3) Read with Section 153A:
The assessee contended that the order passed under Section 143(3) read with Section 153A was void ab-initio as no incriminating material was found during the search to justify the issuance of notice under Section 153A. The addition was based on the assessee making interest-free advances to its sister concerns, which were claimed to be for business purposes and disclosed in the books of accounts. The tribunal referred to several judicial pronouncements, including *Anil Kumar Bhatia vs. Assistant Commissioner of Income Tax* and *Singhad Technical Education Society vs. ACIT*, to support the argument that without incriminating material, the issuance of notice under Section 153A was not justified.

2. Consideration of Development Agreement as Additional Evidence:
The CIT(A) had erred in finding that the development agreement was not filed before the AO and considered it as additional evidence. The tribunal found that the development agreements with Shri Kalyan Realty Ltd and Shri Kalyan Gem Exports Pvt Ltd were executed on 03.09.2011 and were available in the paper book. These agreements were notarized and indicated that the advances were made for business purposes, specifically for developing multi-storied commercial and residential complexes.

3. Opportunity to Present Additional Evidence:
The assessee argued that the CIT(A) did not provide an opportunity before rejecting the additional evidence filed in the paper book. The tribunal noted that the development agreements were crucial to establishing the business purpose of the advances and should have been considered. The failure to provide an opportunity to present this evidence was a procedural lapse.

4. Disallowance of Interest Payment:
The AO had disallowed interest payments on the grounds that the assessee had made interest-free advances to its sister concerns for non-business purposes. The tribunal examined the development agreements and found that the advances were made as security deposits under the terms of the agreements for business purposes. The tribunal referred to several judicial pronouncements, including *CIT vs. Shahibag Entrepreneurs (P) Ltd.* and *S.A. Builders Ltd. vs. CIT*, to support the argument that the advances were made for commercial expediency and were incidental to the assessee’s trade. The tribunal concluded that the AO was not justified in making the disallowance and directed the AO to delete the disallowance for the assessment years 2012-13, 2013-14, and 2014-15.

Conclusion:
The tribunal allowed the appeals of the assessee, finding that the orders passed under Section 143(3) read with Section 153A were not justified in the absence of incriminating material. The tribunal also found that the development agreements were valid evidence of the business purpose of the advances and that the disallowance of interest payments was not warranted. The tribunal directed the AO to delete the disallowance of interest payments for the relevant assessment years. The order was pronounced in the open court on 11/09/2020.

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