2025 (7) TMI 1575 - AT - Income Tax

Addition made in assessment u/s 153A - claim of interest on borrowed capital disallowed on the ground that the assessee had failed to furnish evidence to substantiate that the borrowed funds were utilised for the construction of house property - AO has made addition towards differential interest shown in the original and revised return and disallowed the interest deduction claimed u/s.57 since the assessee has not filed any reply to show cause notice HELD THAT - We note that the assessee has not furnished any further details or documents before us also. On perusal of the order of ld.CIT(A) we find that the interest on borrowed capital has been claimed and the assessee has not furnished any of the details of borrowings and also utilisation of funds in the order. It is also noted that the assessee has failed to explain why gross receipts from income from other sources are reduced from Rs. 6, 96, 213/- in original return to Rs. 3, 59, 498/- in return u/s.153A along with the claim of interest u/s.57 of the Act to the tune of Rs. 1, 61, 986/- in the order. No infirmity in the order of the CIT(A) and the assessee also has not brought out before us any further evidence in support of his claim we are inclined to dismiss the appeal of the assessee by confirming the order of the AO. Appeal of assessee allowed.

Summary

ISSUES:

Whether additions and disallowances made under section 153A of the Income Tax Act are valid in the absence of incriminating material discovered during search and seizure operations.Whether an assessment under section 153A can be made arbitrarily without nexus to the seized material.Whether the disallowance of interest claimed on borrowed capital under section 24(b) is justified without proper documentary evidence of fund utilization.Whether additions made on differential gross receipts declared under section 139(5) and presumptive income under section 139(1) are sustainable.Whether disallowance of expenses claimed under section 57(iii) for earning income from other sources is proper in absence of explanation or evidence.

RULINGS / HOLDINGS:

The Court held that additions and disallowances under section 153A must have a basis in "incriminating material" found during search operations; however, mere suspicion and surmise cannot justify such additions, but the assessment need not be strictly confined to seized material if there is relevant evidence.The Court affirmed that an assessment under section 153A "has to be made only on the basis of seized material" or material relevant thereto, and cannot be arbitrary or without nexus.The disallowance of interest claimed on borrowed capital under section 24(b) was upheld due to the assessee's failure to furnish "evidence to substantiate that the borrowed funds were utilised for the construction of house property."The addition of differential gross receipts declared under section 139(5) and presumptive income was sustained as the assessee failed to provide satisfactory explanation or evidence for the discrepancy.The disallowance of expenses claimed under section 57(iii) was confirmed because the assessee did not respond to the show cause notice or provide evidence to establish the genuineness of the expenditure.

RATIONALE:

The Court applied the statutory provisions under the Income Tax Act, 1961, particularly sections 132 (search and seizure), 153A (assessment after search), 24(b) (interest on borrowed capital), 57(iii) (deduction of expenses for income from other sources), and relevant procedural rules.The Court emphasized that while section 153A does not explicitly require additions to be strictly based on seized material, there must be a "relevance or nexus with the seized material" to avoid arbitrary assessments.The decision relied on the principle that "suspicion however strong cannot take the place of evidence," underscoring the necessity of documentary proof to substantiate claims, especially for interest deductions under section 24(b).The Court noted the assessee's failure to provide fund flow statements, utilization details, or explanations for discrepancies in income declarations, which justified the upholding of additions and disallowances.No dissent or doctrinal shift was indicated; the ruling adhered to established interpretations of the Income Tax Act and procedural fairness in assessment proceedings.