2022 (6) TMI 1011 - AT - Income Tax

Tribunal Rules on Tax Appeals: Additions without Evidence Unsustainable, Agricultural Income Clarified

The Tribunal partially allowed the appeals, ruling that additions made without incriminating material were unsustainable. The disallowance of expenses on ... Assessment u/s 153A - Whether incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search? - HELD THAT:- Upon perusal of decision of Hon’ble Court in CIT V/s St. Francis Clay Décor Tiles [2016 (6) TMI 378 - KERALA HIGH COURT] we find that the said case is factually distinguishable. In that case, the admitted facts were that the Managing Partner of the assessee had given voluntary statement to the Assessing Officer that there was undisclosed income of Rs.2.75 Crores. The admission was retracted by the Managing Partner subsequently. On the basis of these facts, it was concluded by Hon’ble Court that since there was a disclosure made by giving a statement during the course of search and therefore, the Assessing Officer, by virtue of the power conferred on him under section 153A, was competent to issue notice under the said provision and require the assessee firm to furnish the returns as provided there-under. It was further held that neither under section 132 nor under section 153A, the phraseology 'incriminating' is used by the Parliament. Therefore, any material which was unearthed during search operations or any statement made during the course of search by the assessee is a valuable piece of evidence in order to invoke the provisions of Section 153A of the Income Tax Act, 1961. In the present case, no such admission is shown to have been made by the assessee. The revenue could not place any incriminating material before us which has led to the impugned additions / disallowances. So far as the decision of Hon’ble Delhi High Court in Filatex India Ltd. [2014 (8) TMI 387 - DELHI HIGH COURT] is concerned, we find that in that case Ld. AO, in the proceedings u/s 153A, had made several additions, relying upon the incriminating material found in the course of search. It was undisputed fact that there was incriminating material unearthed by the revenue including statement of Shri Sanjay Agrawal, GM (Marketing). It was never the case of the assessee that the initiation of proceedings u/s 153A was bad or unwarranted in law as no incriminating material was found during the search. Therefore, this decision, in our opinion, has no application to the present case before us. The impugned additions / disallowances are unsustainable in the eyes of law. We order so. The corresponding legal ground as raised by the assessee stand allowed which render other grounds merely academic in nature. Agricultural income - It is undisputed fact that the assessee is regularly earning this income since past several years. The assessee possesses agricultural land which fact has been accepted by Ld. CIT(A). The dispute is with regard to quantum of income only. CIT(A) has drawn a presumption that since the assessee’s land holding is 1/4th of land holding of Shri A.Vijaykant, the income should be considered as 1/4th income as shown by him. Since no agricultural income has been shown by assessee’s husband in this year, the entire income has been considered as ‘income from other sources’ which run contrary to the findings of Ld. CIT(A) that the assessee was in possession of land and it earned agricultural income out of the same. Simply because the assessee’s husband did not offer any agricultural income during the year, the assessee’s income could not be taken to be nil. Therefore, this addition has no legs to stand. We direct Ld. AO to treat the income of Rs.7.25 Lacs as agricultural income. The ground thus raised stand allowed. Business loss - We find as no business income has been reflected by the assessee in this year and therefore, the expenditure of Rs.1.09 Lacs is to be disallowed. In other words, business loss of Rs.1.09 Lacs would not be allowable to the assessee. The salary income would be taken as Rs.1.14 Lacs as accepted by Ld. AO. The slot fees of Rs.32.44 Lacs do not emanate from the return of income filed by the assessee. No such expenditure or income has been admitted. We find that there is no basis to make this addition and therefore, the same stand deleted. The appeal stand partly allowed. Issues Involved:1. Validity of assessment under Section 153A in the absence of incriminating material.2. Disallowance of expenses on an ad-hoc basis.3. Treatment of agricultural income as 'income from other sources'.4. Confirmation of interest under Sections 234B and 234C.Issue-wise Detailed Analysis:1. Validity of Assessment under Section 153A:The primary issue was whether the assessment under Section 153A could be upheld in the absence of incriminating material found during the search. The assessee argued that completed assessments could not be reopened under Section 153A without incriminating material. The Tribunal referred to several judicial pronouncements, including the decisions of the Hon'ble Delhi High Court in Pr. CIT V/s Meeta Gutgutia and CIT V/s Kabul Chawla, which held that additions in non-abated assessments must be based on incriminating material found during the search. The Tribunal concluded that since the additions made by the Assessing Officer (AO) were not based on any incriminating material, they were unsustainable in law.2. Disallowance of Expenses on an Ad-hoc Basis:The AO had disallowed 20% of the expenses claimed by the assessee on an ad-hoc basis due to the absence of satisfactory vouchers and to rule out personal elements. The Tribunal noted that the assessee had provided vouchers during the appellate proceedings, which were verified. However, the Commissioner of Income Tax (Appeals) [CIT(A)] disallowed the entire advertisement expenditure, reasoning that the assessee's expertise in costume designing was exclusive and not for the public at large. The Tribunal found the ad-hoc disallowance to be unjustified in the absence of incriminating material and ruled in favor of the assessee.3. Treatment of Agricultural Income as 'Income from Other Sources':The AO treated the agricultural income declared by the assessee as 'income from other sources' based on spot verification, which revealed barren lands. The assessee provided details of agricultural land holdings, evidence of agricultural activities, and sales of produce. The CIT(A) partially accepted the agricultural income but treated 20% as 'income from other sources' due to lack of convincing proof. The Tribunal, however, found that the assessee had consistently declared agricultural income in previous years and possessed agricultural land. The Tribunal directed the AO to treat the declared agricultural income as such and not as 'income from other sources'.4. Confirmation of Interest under Sections 234B and 234C:The assessee contended that the CIT(A) erred in confirming the addition of interest under Sections 234B and 234C. The Tribunal did not provide a detailed discussion on this issue but implied that the interest additions were indirectly confirmed by the CIT(A). Given the Tribunal's findings on the primary issues, the interest under Sections 234B and 234C would also be impacted accordingly.Conclusion:The Tribunal allowed the appeals partly, holding that the additions made in the absence of incriminating material were unsustainable. The disallowance of expenses on an ad-hoc basis and the treatment of agricultural income as 'income from other sources' were also overturned. The interest under Sections 234B and 234C was indirectly addressed through the Tribunal's rulings on the primary issues. The order was pronounced on 08th June 2022.