Entries in  books of  account of Individual Entity Prior to Amalgamation cannot be part of additions made u/s 153A of IT Act in hands of assessee: ITAT deletes Addition [Read Order]

The Income Tax Appellate Tribunal (ITAT), Mumbai Bench, held that entries in the books of account prior to amalgamation could not be part of additions made under Section 153A of the Income Tax Act, 1961, in the hands of the assessee. Therefore, the bench deleted the addition.

The assessee, Citygold Education Research Limited, is a private limited company engaged in the business of disseminating and advancing knowledge, promoting educational activities, and dealing in land, commercial and residential complexes, among other activities.

The assessee company and two other entities were amalgamated from 01/04/2018 as per the order of the National Company Law Tribunal.

A search action under section 132 of the Income-Tax Act was carried out in the case of Hubtown Limited and other group concerns, including the assessee, on 30/07/2019. The notice under section 153A was issued on 12/11/2020. In response to the said notices, the assessee filed a return of income on 05/02/2021, declaring a total loss of Rs.72,15,826/-

Pursuant to the search in the case of the assessee, the Assessing Officer noticed that the financial accounts submitted by the assessee of M/s Citygold Farming P Ltd and M/s Heddle Knowledge P Ltd for the year ended 31/03/2016 showed a write-off of advances and other debit balances to the tune of Rs.8,45,866/- and Rs.18,16,839/-, respectively.

For the Assessment year 2017-18, the assessee filed the return in response to the notice under section 153A on 05.02.2021, declaring a loss of Rs.1,44,42,886. While completing the assessment of the assessee under section 153A r.w.s.143(3), additions were made towards disallowance of debt written off in the books of M/s Citygold Farming P Ltd and also an addition under section 50C towards sale of land by Headland Farming P Ltd below the stamp duty value.

Aggrieved by the order, the assessee filed an appeal before the CIT(A), who dismissed the appeal filed by the assessee. Therefore, the assessee filed a second appeal before the tribunal.

Counsel for the assessee before the tribunal submitted that the write-off of debts/advances was made in the books of accounts of M/s Citygold Farming P Ltd and M/s Heddle Knowledge P Ltd prior to the effective date of amalgamation and, therefore, cannot be disallowed in the hands of the assessee for the year under consideration while completing the assessment under section 153A of the Income Tax Act.

Counsel for the revenue submitted that they supported the order of the lower authorities.

After reviewing the facts and records, the two-member bench of Padmavathy S. (Accountant member) and Kuldip Singh (Judicial Member) held that additions made under section 37(1) and section 50C based on the transactions in the books of Citygold Farming Pvt Ltd and Headland Farming P Ltd in the assessee’s hands shall not be sustained.

Vijay Mehta, Counsel, appeared for the assessee, and Madhu Malati Ghosh, Counsel, appeared for the revenue.

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