The Chennai Bench of Income Tax Appellate Tribunal (ITAT), held that no addition can be made by the AO in absence of any incriminating material found during the course of search under Section 132 of the Income Tax Act,1961.
The assessee Mr.Ritesh Rai is the Managing Director of M/s.SBQ Steels Ltd., & M/s.RKKR Steels Ltd., and both companies are engaged in manufacture and sale of iron & steel bars. A search operation under Section 132 of the Income Tax Act consequent to search a notice under Section 153A of the Income Tax Act, was issued and accordingly, the case was selected for scrutiny.
During the course of assessment proceedings, the Assessing Officer (AO) noticed that the assessee has received unsecured loans from various persons, and thus, called upon the assessee to file necessary details, including identity and genuineness of transactions. Since, the assessee could not furnish any evidences to establish the genuineness of the loans, the AO has made additions towards unsecured loans, and consequent interest paid on said loans.
Aggrieved by the order, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)], which partly allowed the appeal and directed the AO to delete separate addition of Rs.2,94,904/- towards interest and sustained addition made towards unsecured loans. Aggrieved by the order of the CIT(A), the assessee is in appeal before Income Tax Appellate Tribunal(ITAT).
The Counsel for the assessee Mr. B.Ramakrishnan, submitted that additions made by the AO towards unsecured loans is not backed by any incriminating material found as a result of search, and thus, in absence of any incriminating material, no addition can be made in the assessment framed under Section 143(3) r.w.s.153A of the Income Tax Act, if such assessment is unabated/concluded as on the date of search.
The Departmental Representative, R. Mohan Reddy, submitted that the assessee is a part of group companies which are involved in taking bogus accommodation entries in the form of share capitals and loans from Kolkata Companies, and there is a direct link between entries obtained from Kolkata Companies in the case of group companies and loans taken by the assessee.
Further he stated that the assessee could not file any evidences in support of various unsecured loans claims to have been received from certain parties, and thus, the AO & the CIT(A) has rightly made addition.
The Bench comprising of V. Durga Rao, Judicial Member and Manjunatha. G, Accountant Member, relied on the decision of the Supreme Court in the case of PCIT v. Abhisar Buildwell (P) Ltd. where it was held that in respect of completed assessment/unabated assessment, no addition can be made by the AO in absence of any incriminating material found during the course of search under Section 132 of the Income Tax Act, or requisition made under Section 132A of the Income Tax Act.
Thus the Bench set aside the issue of addition made towards unsecured loans for to the file of the AO and direct the AO to re-examine the claim of the assessee.
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