SHRI RAM BABU VIJAY ,KOTA vs. DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE, KOTA

“ 1. That the ld. A.O. grossly erred on law to assess the income u/s 153A. That in this case the search was consequential, hence the ld. A.O. should restrict his assessment on the papers relating to Kota Dal Mill Group, further the ld. CIT (A) also erred in commenting that no infirmity is found in the order made ld. AO.

2. That the ld. AO grossly erred on law and facts in making disallowance of Rs. 15,544.00 out of deduction under Chapter VI-A. The ld. CIT (A) erred in sustaining thereof.

3. That the ld. AO grossly erred on law and facts in not allowing interest expenses claimed under the head “Income from Other Sources” of Rs. 26,928/- and the ld. CIT (A) erred in sustaining thereof.

4. That the ld. AO grossly erred on law and facts in making addition in LTCG Rs. 1,12,643.00 and the ld. CIT (A) also erred in sustaining thereof.

Ground No. 1 is general in nature and does not require any separate finding.

Ground No. 2 is regarding disallowance of deduction under section 80C of the IT Act in respect of Tuition Fees paid by the assessee.

However, he has submitted that as on the date of search, the assessment for these two assessment years i.e. 2010-11 and 11-12 were not pending and, therefore, this was not a case of abated assessment due to the reason of search and seizure action under section 132 of the Act. He has further submitted that while framing the assessment under section 153A read with section 143(3), the AO has made addition on account of disallowance of deduction under section 80C without having any incriminating material found or seized during the course of search. Thus he has submitted that the disallowance made by the AO is not sustainable and liable to be deleted. He has further submitted that though the AO has partly allowed the claim under section 80C on account of Tuition Fees paid to the School in respect of elder child, however, the assessee has lost/misplaced the receipt in respect of the payment of Rs. 15,544/- and, therefore, the AO disallowed the claim. In support of his contention, he has relied upon the precedents on this issue that no addition can be made in the proceedings under section 153A in the absence of any incriminating material. The ld. A/R has relied upon the judgment of Hon’ble Jurisdictional High Court in case of Jai Steel India vs. ACIT, 219 Taxman 223 (Raj.).

The AO noted that the assessee has produced the evidence to the extent of Rs. 84,456/- but no evidence has been produced for deduction of Rs. 15,544/-.

Accordingly, the AO disallowed the claim to the extent of Rs. 15,544/-. The assessee though challenged the action of the AO before the ld. CIT (A), however could not produce any evidence in support of the claim. Even before the Tribunal, the assessee has not produced any evidence in support of the claim of payment of Tuition Fees to the extent of Rs. 15,544/- which was disallowed by the AO. Thus it is a matter of fact of incurring the expenditure and not a matter of discretion of the AO or a decision to be taken by the AO. Therefore, in the absence of any evidence in support of the expenditure that too towards the Tuition Fees of the child, the claim of the assessee cannot be allowed. There is no dispute that if a claim which is not disallowed by the AO while accepting the return of income filed under section 139(1), then a completed assessment on the date of search cannot be disturbed without incriminating material found and seized revealing undisclosed income or wrong claim made by the assessee in the return of income. In the case in hand, it is not a claim to be decided as the provisions of section 80C are not a matter of discretion of the AO if the investment or expenditure is incurred falling under the category provided under the said provision. The issue in this appeal is only substantiating the expenditure itself and not the allowability of the claim. Once the expenditure is not substantiated by the assessee by producing any evidence then such claim cannot be allowed.

Ground No. 3 is regarding disallowance of interest.

I have heard the ld. A/R as well as ld. D/R and considered the relevnt material on record.

5. The assessee in the return of income filed under section 139(1) has referred the interest income after deduction of interest expenditure. Thus the assessee offered net interest income to tax. In the assessment completed under section 153A, the AO disallowed the claim on the ground that the interest expenditure was not incurred for earning the interest income. Therefore, such disallowance made by the AO by taking a view that the interest expenditure cannot be held to be incurred for earning the interest income is not permissible when there is no incriminating material found in the search and seizure action. Hence the claim of the assessee was accepted when the assessment was not pending as on the date of search.

Accordingly, in view of the decision of Hon’ble Jurisdictional High Court in case of Jai Steel India vs. ACIT, 219 Taxman 223 (Raj.), the AO is not permitted to make an addition in the absence of any incriminating material. Hence the disallowance made by AO on account of interest expenditure is deleted.

Ground No. 4 is regarding an addition made in long term capital gains.

For the assessment year 2011-12, the only issue raised by the assessee is regarding disallowance of interest expenses which is common as in the appeal for the assessment year 2010-11.

Order is pronounced in the open court on 04/10/2019.