Assessment under Section 153C quashed for lack of incriminating material but additions upheld for unexplained expenditure and below-market equity shares

ITAT Chennai quashed assessment under section 153C for assessment year 2012-13 due to absence of incriminating material seized during search, following Supreme Court precedent in Abhisar Buildwell case. Court upheld additions for: helper allowance disallowance due to lack of evidence; taxable perquisites from electronic items and furniture at residence; unexplained foreign travel expenditure of Rs. 1,50,000 under section 69C. Deleted deemed rental income addition as authorities failed to determine scientific market valuation. Confirmed substantial addition of Rs. 1,24,88,29,788 under section 56(2)(vii)(c) for equity shares allotted below fair market value, ruling company and individual shareholder don't qualify as relatives under statutory definition.

---

---

Issues Involved:

1. Jurisdictional issue regarding the validity of the assessment under section 153C.
2. Disallowance of expenditure towards helper allowance.
3. Taxable perquisites for electronic and furniture items.
4. Deemed rental income estimation.
5. Unexplained foreign travel expenditure under section 69C.
6. Addition under section 56(2)(vii)(c) for allotment of equity shares at less than fair market value.

Summary:

1. Jurisdictional Issue:
The assessee challenged the assessment under section 153C r.w.s. 144 of the Income Tax Act, 1961, arguing the absence of incriminating material found during the search. The Tribunal noted that the assessment for the relevant year was unabated and no incriminating material was found. Citing the Supreme Court decision in PCIT vs. Abhisar Buildwell (P) Ltd., it was held that the assessment without incriminating material on unabated assessment is bad in law. Thus, the Tribunal quashed the assessment framed under section 153C r.w.s. 143(3).

2. Disallowance of Helper Allowance:
The assessee claimed deduction for helper allowance under section 10(14)(i), which was disallowed by the AO due to lack of supporting documents. The Tribunal upheld the disallowance as the assessee could not provide evidence to substantiate the claim.

3. Taxable Perquisites:
The AO added Rs. 3,96,016/- as taxable perquisites for electronic and furniture items provided by the company for the assessee's use. The Tribunal upheld the addition, noting the assessee failed to provide evidence to counter the findings.

4. Deemed Rental Income:
The AO estimated deemed rental income for properties not declared by the assessee. The CIT(A) reduced the addition, estimating a fair rent. The Tribunal deleted the addition, stating that the authorities did not follow a scientific method or municipal valuation to ascertain the market value of rent.

5. Unexplained Foreign Travel Expenditure:
The AO added Rs. 1,50,000/- as unexplained expenditure under section 69C for foreign travel. The Tribunal upheld the addition as the assessee could not provide details or evidence of the expenditure.

6. Addition under Section 56(2)(vii)(c):
The AO added Rs. 124,88,29,788/- under section 56(2)(vii)(c) for allotment of equity shares at less than fair market value. The Tribunal upheld the addition, stating that the transaction between the company and the individual shareholder does not fall under the exception for relatives in the proviso to section 56(2)(vii). The Tribunal emphasized that the company and the shareholder are separate entities, and the assessee's case does not qualify for exemption under the definition of 'relative.'

Conclusion:
The Tribunal allowed the appeal regarding the jurisdictional issue, quashing the assessment under section 153C. Other issues were decided against the assessee, with the Tribunal upholding the disallowances and additions made by the AO and CIT(A). The appeal in ITA No.950/CHNY/2022 was allowed, while ITA No.519/CHNY/2023 was partly allowed.

---