No Addition would be made in Absence of Incriminating Material During Search: ITAT dismisses Appeal [Read Order]

The Kolkata bench of the Income Tax Appellate Tribunal (ITAT) held that there would be no additions made in the absence of incriminating material found during the search action.

The Assessee, M/s Forum Projects Pvt. Ltd. Company has been in the business of the development and construction of the real estate projects. During the assessment proceedings, the Assessing Officer (AO) received substantial advances from the various parties against which the interest was paid after the due deduction of tax. It was noticed that the assessee had received an advance of Rs.44,62,00,000/- from Forum Venture Pvt. Ltd.

The Assessing Officer determined that the regulations outlined in Section 2(22) (e) of the Income Tax Act, 1961 were relevant to the companies in question. According to this provision, the advances received by the assessee-company were treated as deemed dividends of the assesse-company.

The Commissioner of Income Tax (Appeals) (CIT(A)) has deleted the additional amounts added by the assessing officer. These additions were made without any evidence of wrongdoing found during the search operation.

This issue was covered by the recent decision of the Supreme Court in the case of PCIT vs. Abhisar Buildwell Pvt. Ltd.

The revenue objected to the decision of the Commissioner of Income Tax (Appeals) (CIT(A)) to remove the inclusion of Rs. 37,09,868/- made by the Assessing Officer. This addition was based on the proportional disallowance of expenses associated with the generation of tax-exempt income, invoking the provisions of section 14A read with rule 8D (2) of the Income Tax Act.

The counsel for the assessee has submitted that the assessee had received a dividend income of Rs.4436/- only whereas, the assessee had already disallowed R.2,00,000/- in the computation of income on account of disallowance of expenditure under Section 14A of the Income Tax Act.

The commissioner of Income Tax (Appeals) held that the addition under Section 14A was not based on any incriminating material found during the search action. Therefore, deleted the impugned additions.

The revenue has contested the action of the commissioner of Income Tax (Appeals) in deleting the addition made by the Assessing Officer on account of disallowance of statutory deduction claimed by the assessee under Section 24(i) of the Income Tax Act.

The Assessing Officer noted that the assessee company operated in the real estate sector and had declared specific administrative expenses in their business income. Additionally, the assessee had also claimed the standard deduction as per Section 24(i) of the Income Tax Act.

As a result, the Assessing Officer removed the statutory deduction under Section 24(i) of the Income Tax Act. However, this decision was overturned by the Commissioner of Income Tax (Appeals) and the deduction was reinstated.

The two-bench member comprising of Sanjay Garg (Judicial member) and Rajesh Kumar (Accountant member) dismissed the appeal of the revenue.

To Read the full text of the Order CLICK HERE

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