2021 (10) TMI 1202 - AT - Income Tax

'Tribunal Upholds CIT(A)'s Decisions on Revenue's Appeals Regarding Section 153A Additions' (A)

The Tribunal dismissed the Revenue's appeals and upheld the CIT(A)'s decisions to delete various additions made by the AO. It emphasized that in ... Sundry debtors written off - assessee has not demonstrated how the debts have become bad or what efforts have been taken for recovery - HELD THAT:- CIT(A) has given finding that it is clear that the ledger accounts and sales invoices along with a detailed chart has been furnished by the assessee which demonstrates that the amount involved in the debts have been offered as income in the earlier years. CIT(A) has rightly rejected the AO’s plea that the assessee has not demonstrated how the debts have become bad or what efforts have been taken for recovery. As the said issue is duly covered by the decision in the case of TRF Ltd. [2010 (2) TMI 211 - SUPREME COURT] wherein it was held that after amendment in the Act write off in the account is sufficient for the claim of debts written off. Hence, in our considered opinion there is no infirmity in the order of learned CIT(A). Moreover, this ITAT in assessee’s own case for A.Y. 2011-12 & 2012-13 in [2021 (6) TMI 615 - ITAT MUMBAI] on the issue of bad debts similarly raised, has allowed the same in favour of the assessee. Finished goods written off - HELD THAT:- In order to bring out the effect of the change in the method of accounting the assessee had reduced the effect which is ₹ 37.41 cores from the consumption which would decrease valuation of opening stock and increase the profit. Further in order to negate this effect the assessee had debited the same amount to the profit and loss account as exceptional items written off. Thus there is no effect on the profit and loss account and the assessee has not tinkered with the opening stock. To recapitulate, the assessee has reduced the value of opening stock by a sum of ₹ 37.41 crores which is a credit effect increasing the income and has simultaneously debited the profit and loss account by the same amount as exceptional items written off to nutralize the effect. Thus actually there is no effect and this has also been detailed in Note No. 4 given by the auditors in the notes to accounts. In this view of the matter in our considered opinion, we do not find any infirmity in the order of learned CIT(A). We note that in the present case before us aforesaid amount added by the AO is erroneous as assessee’s adjustment has not affected to the profit and loss account. In this view of the matter we do not find any infirmity in the order of learned CIT(A). Hence, we uphold the same. Issues Involved1. Legality of additions made by the Assessing Officer (AO) under Section 153A without incriminating material.2. Disallowance of deduction under Section 10B.3. Adjustment of Arm's Length Price (ALP) on loans given to Associated Enterprises (AEs).4. Addition on account of sale of scrap.5. Addition under Section 68 for unexplained share capital and premium.6. Finished goods written off.7. Debtors written off.Analysis of Judgment1. Legality of Additions under Section 153A without Incriminating MaterialThe primary issue revolved around whether the AO could make additions under Section 153A of the Income Tax Act without any incriminating material found during a search. The Tribunal upheld the CIT(A)'s decision to delete the additions, citing the Bombay High Court's ruling in All Cargo Global Logistics Ltd. and Continental Warehousing Ltd., which mandates that additions in non-abated assessments must be based on incriminating material found during the search. The Tribunal noted that the AO had not referred to any incriminating material in making the additions for AYs 2007-08, 2008-09, and 2009-10.2. Disallowance of Deduction under Section 10BThe AO had disallowed deductions under Section 10B by reallocating expenses, arguing that the assessee had shown exorbitant profit margins in the Export Oriented Unit (EOU) and had not debited some common expenses. The Tribunal found that these disallowances were not based on any incriminating material found during the search, and thus, could not be sustained. The CIT(A)'s decision to delete these disallowances was upheld.3. Adjustment of Arm's Length Price (ALP) on Loans to AEsThe AO made adjustments to the ALP on interest charged on loans given to AEs without referring to any incriminating material found during the search. The Tribunal upheld the CIT(A)'s decision to delete these adjustments, reiterating that in the absence of incriminating material, such additions could not be sustained.4. Addition on Account of Sale of ScrapThe AO added an amount based on loose papers found during a survey, which was part of the search operation. The CIT(A) rejected the assessee's contention that this addition was not based on incriminating material and upheld the addition on its merits. The Tribunal did not find any reason to interfere with this decision.5. Addition under Section 68 for Unexplained Share Capital and PremiumThe AO added amounts under Section 68 for unexplained share capital and premium based on details in the balance sheet, not on any incriminating material found during the search. The Tribunal upheld the CIT(A)'s decision to delete these additions, as they were not based on any incriminating material.6. Finished Goods Written OffThe AO disallowed the write-off of finished goods, citing a lack of clarity in the explanation provided by the assessee. The CIT(A) found that the assessee had changed its method of valuation in accordance with AS-2 and that this change did not affect the profit. The Tribunal upheld the CIT(A)'s decision, noting that the AO had misunderstood the accounting treatment and that the write-off did not impact the profit and loss account.7. Debtors Written OffThe AO disallowed the write-off of debtors, arguing that the assessee had not demonstrated how the debts had become bad or what efforts were made for recovery. The CIT(A) found that the assessee had provided sufficient evidence, including ledger accounts and sales invoices, to demonstrate that the debts had been offered as income in earlier years. The Tribunal upheld the CIT(A)'s decision, citing the Supreme Court's ruling in TRF Ltd. that write-off in the accounts is sufficient for claiming bad debts.ConclusionThe Tribunal dismissed the Revenue's appeals and upheld the CIT(A)'s decisions to delete the various additions made by the AO. The Tribunal emphasized that in non-abated assessments, additions under Section 153A must be based on incriminating material found during the search, aligning with the jurisdictional High Court's rulings.