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2019 (4) TMI 97 - AT - Income TaxAssessment u/s 153A - assessment for the year under consideration was not abated as on the date of search and CIT holding that the contention of the assessee cannot be accepted in view of SLPs admitted in various cases - No opportunity of cross examination of witnesses - addition u/s 68 - HELD THAT - Although Section 153 A does not say that additions should be strictly made on the basis of evidence found in the course of the search or other post-search material or information available with the AO which can be related to the evidence found it does not mean that the assessment can be arbitrary or made without any relevance or nexus with the seized material. Obviously an assessment has to be made under this Section only on the basis of seized material. In the instant case we find that the time limit prescribed for issue of notice u/s 142(1)/143(2) of I.Tax Act for AY 2010-11 & AY 2011-12 has expired before the search. Therefore the assessment for AY 2010-11 & A.Y 2011-12 was deemed completed. Not providing opportunity to cross examination - relying on the decision of the Tribunal in the case of M/s Kota Dall Mill Vs. DCIT 2019 (1) TMI 344 - ITAT JAIPUR for the A.Y. 2010-11 and 2015-17 it was held that addition made without providing opportunity of cross examination is not sustainable. The details clearly show that at the time of granting of loans to the assessee these companies were having sufficient funds. Further we have already recorded the details of repayment made by the assessee of these loans and once regular repayment was there even prior to the date of search then the transactions cannot be doubted as nothing can be achieved by taking the loan and then repaying the same through banking channel even if there is corresponding channelization of cash. As we have discussed that the AO has not pointed out any discrepancy in the financial statements or in the bank account statements of the loan creditors to show that there was deposit or introduction of the cash prior to giving the loan to the assessee no addition to be made. No addition in case of not abated assessment when no incriminating material is found is covered by the decision of the Tribunal in the case of M/s Kota Dall Mills Vs. DCIT. Supra Tribunal have confirmed the order of the ld. CIT(A) with respect of the share application money accepted at premium from following three concerns namely M/s Sangam Distributors Pvt. Ltd. M/s Teac Consultants Private Limited and M/s ISIS Mercantiles Pvt. Ltd. Similarly we found that the unsecured loan taken from M/s Jalsagar Commerce Pvt. Ltd. have also been dealt by the Tribunal after dfealing threadbare in the case of M/s Kota Dall Mill Vs. DCIT (supra) for the assessment years 2010-11 to 2015-16. As the facts and circumstances during both the assessment years are same as have elaborately discussed by the Tribunal in the above years respectfully following the same we do not find any merit in the addition so made with respect to unsecured loan taken from M/s Jalsagar Commerce Pvt. Ltd. and share application money with premium from M/s Sangam Distributors Pvt. Ltd. M/s Teac Consultants Private Limited and M/s ISIS Mercantiles Pvt. Ltd. Disallowance u/s 14A - non recording any satisfaction as to the correctness of the claim made by the assessee - CIT(A) has deleted the addition by observing that AO has mechanically applied the Rule 8D as amended w.e.f. 02/6/2016 which was not even applicable to the relevant assessment years under consideration - HELD THAT - AO has not established any nexus of investment with the borrowed funds rather availability of sufficient interest free funds justifies the case of the assessee that the disallowance U/s 14A is unwarranted. Detailed findings were recorded by the ld. CIT(A) are as per material on record which do not require any interference on our part. Accordingly grounds taken by the revenue in both the years with regard to the disallowance U/s 14A of the Act are dismissed.
Issues Involved:
1. Legality of the order passed under Section 153A read with Section 143(3) of the Income Tax Act, 1961. 2. Validity of additions made under Section 68 of the Income Tax Act. 3. Denial of opportunity for cross-examination. 4. Justification of additions based on statements and third-party information. 5. Deletion of additions by the CIT(A) and the Revenue's appeal against it. 6. Disallowance under Section 14A of the Income Tax Act. Detailed Analysis: 1. Legality of the Order Passed Under Section 153A Read with Section 143(3): The assessee challenged the legality of the order passed under Section 153A read with Section 143(3) on the grounds that the assessment was not abated as on the date of search. The Tribunal noted that the assessments for the years 2010-11 and 2011-12 were completed before the search, and no incriminating material was found during the search. It was held that in the absence of any incriminating material, the completed assessments could only be reiterated and not disturbed. The Tribunal relied on several judicial precedents, including the Delhi High Court's decision in PCIT vs. Kurele Paper Mills Pvt Ltd and the Supreme Court's dismissal of the SLP against it, to support its conclusion. Therefore, the additions made by the AO were not sustainable. 2. Validity of Additions Made Under Section 68: The AO made additions under Section 68 based on the statements of accommodation entry providers and third-party information. The assessee contended that these additions were arbitrary and based on no evidence. The Tribunal observed that the AO relied on the statements of third parties without providing the assessee an opportunity to cross-examine them. The Tribunal emphasized that the assessee had provided necessary documents to substantiate the identity, creditworthiness, and genuineness of the transactions. The Tribunal concluded that the additions made by the AO were not justified as they were based on suspicion and conjecture without any tangible evidence. 3. Denial of Opportunity for Cross-Examination: The assessee argued that the AO violated the principles of natural justice by not providing an opportunity to cross-examine the alleged accommodation entry providers. The Tribunal noted that the AO and CIT(A) failed to provide the opportunity for cross-examination despite repeated requests from the assessee. The Tribunal relied on the Supreme Court's decision in Andaman Timber Industries vs. CCE, which held that denial of cross-examination amounts to a violation of natural justice. Consequently, the Tribunal held that the assessment order was void ab initio due to the denial of the opportunity for cross-examination. 4. Justification of Additions Based on Statements and Third-Party Information: The AO made additions solely based on the statements of third parties and information from the Investigation Wing. The Tribunal observed that these statements were recorded at the back of the assessee and were not corroborated by any documentary evidence. The Tribunal emphasized that the AO should have provided the assessee with the material used against it and allowed cross-examination of the witnesses. The Tribunal concluded that the additions were not sustainable as they were based on statements without any supporting evidence. 5. Deletion of Additions by the CIT(A) and the Revenue's Appeal Against It: The CIT(A) deleted the additions made by the AO on account of share application money and unsecured loans. The Revenue appealed against the deletion. The Tribunal upheld the CIT(A)'s decision, noting that the assessee had provided sufficient evidence to substantiate the transactions. The Tribunal observed that the AO did not bring any specific defect in the evidence provided by the assessee. The Tribunal also noted that the AO's reliance on the statements of third parties without providing an opportunity for cross-examination was unjustified. Therefore, the Tribunal dismissed the Revenue's appeal. 6. Disallowance Under Section 14A: The AO made disallowance under Section 14A for both assessment years. The CIT(A) deleted the disallowance, observing that the AO did not record any satisfaction as required under Section 14A(1) before making the disallowance. The Tribunal upheld the CIT(A)'s decision, noting that the AO mechanically applied Rule 8D without establishing any nexus between the investment and borrowed funds. The Tribunal concluded that the disallowance under Section 14A was unwarranted and dismissed the Revenue's appeal on this ground. Conclusion: The Tribunal concluded that the additions made by the AO under Section 68 were not sustainable due to the lack of incriminating material and denial of the opportunity for cross-examination. The Tribunal upheld the CIT(A)'s deletion of the additions and disallowance under Section 14A. The appeals by the assessee were allowed, and the appeals by the Revenue were dismissed.
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