ITAT deletes additions under section 153A lacking incriminating material support from search operations

ITAT Mumbai ruled in favor of the assessee regarding assessment under section 153A. The tribunal held that additions made under section 68 for unsecured loans, interest, notional commission expenses, and various other expenses including labor charges, professional fees, brokerage, and compensation were not supported by incriminating material found during search. Regular books maintained in tally software did not constitute incriminating evidence. Since no incriminating material backed the additions, the AO was directed to delete all impugned additions made in the unabated assessment year.

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Issues Involved:
1. Validity of additions made under Section 68 of the Income Tax Act for unabated assessment years without incriminating material.
2. Disallowance of interest on unsecured loans and notional commission.
3. Disallowance of various expenses such as brokerage, professional fees, and labour charges.
4. Treatment of abated assessments for the assessment years 2013-14 and 2014-15.

Issue-wise Detailed Analysis:

1. Validity of Additions under Section 68 for Unabated Assessment Years:
The primary issue was whether additions made under Section 68 of the Income Tax Act for the assessment years 2010-11, 2011-12, and 2012-13 (unabated years) were sustainable without any incriminating material found during the search. The Tribunal noted that for unabated assessments, additions can only be made based on incriminating material found during the search. The Tribunal referred to the judgments of the Hon'ble Bombay High Court in CIT vs. Continental Warehousing Corporation and CIT vs. Gurinder Singh Bawa, which held that in the absence of incriminating material, no additions can be made in unabated assessments under Section 153A. The Tribunal found that the regular books of accounts maintained in tally software did not constitute incriminating material. Therefore, the additions made under Section 68 for these years were deleted.

2. Disallowance of Interest on Unsecured Loans and Notional Commission:
The Assessing Officer (AO) had disallowed the interest paid on unsecured loans and added notional commission expenses, alleging that the loans were accommodation entries. The Tribunal found that these disallowances were not based on any incriminating material found during the search. The statement of Shri Jitendra Jain, recorded under Section 132(4), was not supported by any corroborative evidence found during the search. The Tribunal held that the statement alone could not justify the disallowances in unabated assessments, as per the decision in CIT v. Harjeev Aggarwal. Consequently, the disallowances were deleted.

3. Disallowance of Various Expenses:
The AO had made disallowances on various expenses such as brokerage, professional fees, and labour charges, citing insufficient details. The Tribunal noted that these disallowances were not based on any incriminating material found during the search. The Tribunal observed that the AO's disallowances were based on the premise that details were not submitted or were insufficient, rather than on any incriminating evidence. As such, these disallowances were also deleted.

4. Treatment of Abated Assessments for AYs 2013-14 and 2014-15:
For the assessment years 2013-14 and 2014-15, which were abated assessments, the Tribunal set aside the additions back to the file of the AO for fresh examination. The Tribunal directed the AO to review the issues afresh based on the material available on record and to complete the assessment on merits after providing the assessee with a proper opportunity of being heard. The Tribunal followed the precedent set in the case of M/s Kamla Landmarc Enterprises Vs DCIT & Others, where similar directions were given for abated assessments.

Conclusion:
The appeals for the assessment years 2010-11, 2011-12, and 2012-13 were allowed, resulting in the deletion of additions and disallowances made by the AO. The appeals for the assessment years 2013-14 and 2014-15 were allowed for statistical purposes, with directions for fresh examination by the AO. The Tribunal's decision was pronounced in the open court on 02.09.2022.

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