DY. COMMISSIONER OF INCOME TAX , CENTRAL CIRCLE-1(2), HYDERABAD vs. AMSRI BUILDERS, SECUNDERABAD

The grounds raised

The Additional ground raised by the Revenue in reads as under: “The Ld.CIT(A) erred in not appreciating the fact that the income should be assessable as business income u/s 28(i) of the Income Tax Act, 1961 as the amount of trade advances were appropriated by the assessee for the work already done by him of arranging 453 acres of land and other works as mentioned in the clause 2.3.1 of the Financial Terms, Conditions and Timelines for settlement of agreement dated 13th January 2010.”

The brief facts of the case are that the assessee is a partnership firm and engaged in the business of real estate and construction of apartments. A search and seizure operation u/s 132 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) was carried out in the case of the assessee and its partners on 27.12.2013. During the course of search, a draft copy of Settlement Agreement dt.13.01.2010 between Smith Group of Companies and M/s. Amsri Principals was found. As per the Settlement Agreement dt.13.01.2010, M/s. Amsri Principals had agreed to arrange 600 acres of land for Smith Group of Companies for real estate development in Hyderabad. It was agreed that, for the purpose of acquisition of land, Smith Group will provide adequate finance by way of advance. M/s. Amsri Principals and M/s. Amsri Builders failed to fulfill their commitment to arrange the land. The arrangements which passed through rough weather were finally culminated in Settlement Agreement between the parties and as per the said agreement, Smith Group forgives an amount of Rs.26,84,75,235/- being unutilized advance due to Smith Group from various related companies of M/s. Amsri Principals.

Consequent to search, notice u/s 153A of the Act, dt.10.11.2014 was issued. In response to notice, the assessee has filed return of income for A.Y. 2010-11 on 07.08.2015 declaring total income at Rs.6,67,070/-. During the course of assessment proceedings, the Assessing Officer noticed that the firm M/s.

During the course of assessment proceedings, the Assessing Officer called upon the assessee to explain as to why benefit derived from ‘debt forgiveness’ on account of Settlement Agreement dt.13.01.2010 with Smith Group of Companies should not be brought to tax under Section 28(iv) of the Act ? In response, the assessee submitted that the cessation of liability in the case of M/s. Amsri Builders on account of Settlement Agreement and capital gain tax in the case of Shri P. Amruth Prasad and Uppu Srinivas on account of transfer of their shareholdings in Smith Group are duly brought to tax in A.Y. 2011-12. The assessee had also explained the terms and conditions of Settlement Agreement and the purpose of debt waiver by the Smith Group and argued that Section 28(iv) of the Act has no application, because as per the said provisions, the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession shall alone be treated as income. Since the assessee has derived the benefit by way of ‘debt forgiveness’ which is a monetary benefit, the provisions of Section 28(iv) of the Act, cannot be applied. The assessee also relied upon the decision of Hon'ble Gujarat High Court in the case of CIT Vs. Alchemic Pvt. Ltd. reported in 130 ITR 168.

The Assessing Officer, after considering the relevant submissions of the assessee and also taking note of the provisions of Section 28(iv) of the Act, observed that going by the date of the Settlement Agreement entered into between the parties dt.13.01.2010, a significant risk and rewards which arisen out of this agreement have been transferred between the parties during the F.Y. 2009-10 only. Since the Settlement Agreement was not disputed, it can be safely concluded that the terms of Settlement Agreement were executed as such during the F.Y. 2009-10 relevant to assessment year 2010-11. Therefore, the income arisen on account of ‘forgiveness of debt’ from the Settlement Agreement between Smith Group and M/s Amsri Principals, is liable to be taxed for A.Y. 2010-11, but not A.Y. 2011-12, as claimed by the assessee. This fact has been further strengthened by the fact that M/s. Veer West Reality India Pvt. Ltd., vide their letter dt.22.08.2014 where it has categorically confirmed that the amount receivable from M/s. Amsri Group, being irrevocable has been written off in A.Y. 2010-11 by considering the same, as part of project cost and included in the value of Work-in-Progress (WIP). They have also filed copies of balance-sheets of M/s. Amsri Spire Constructions Pvt. Ltd, M/s. Amsri Smith Reality Pvt. Ltd., and M/s. Amsri Spire Reality Pvt. Ltd. From the books of accounts of the above three companies, it is undisputedly clear that the amount outstanding in their books of accounts has been taken into WIP. Therefore, the Assessing Officer observed that going by terms and conditions of Settlement Agreement and the subsequent events, it is undisputedly clear that, the benefit arising out of Settlement Agreement dt.13.01.2010, and consequent ‘debt forgiveness’ is taxable, as ‘business profits’ u/s 28(iv) of the Act, for A.Y. 2010-11 and therefore, by taking into account the amount outstanding in the name of assessee firm amounting to Rs.26,84,71,235/-, has been treated as income under Section 28(iv) of the Act.

Being aggrieved by the assessment order, the assessee preferred appeal before the LD.CIT(A) and challenged the addition made by the Assessing Officer towards cessation of liability accrued and crystallized on account of Settlement Agreement between the parties dt.13.01.2010. The assessee had also filed additional ground in light of the decision of the Hon'ble Supreme Court in the case of CIT Vs. Mahindra and Mahindra Ltd. reported in (2018) 404 ITR 1(SC) and argued that benefit accrued to the assessee by virtue of Settlement Agreement dt.13.01.2010, is not taxable under Section 28(iv) of the Act.

The LD.CIT(A), after considering the submissions of the assessee and also taking note of provisions of Section 28(iv) of the Act and Section 41(1) of the Act, and also by following the decision of Hon'ble Supreme Court in the case of CIT Vs. Mahindra and Mahindra (supra), held that the amount received by the assessee as advance was in terms of money and not as any non-monetary benefit. Further, the same is not held as cession of liability by the Assessing Officer himself. In view of the factual position as above, applying the ratio as laid down by the Hon'ble Supreme Court in the case of CIT Vs. Mahindra and Mahindra (supra), has held that an amount of Rs.26,84,71,235/-, forgone as debt forgiveness is not taxable in the hands of the assessee and therefore, directed the Assessing Officer to delete addition made towards benefit derived in the form of ‘debt forgiveness’ as business profits under Section 28(iv) of the Act, 1961. The relevant findings of the LD.CIT(A) are as under:

Profits chargeable to tax. (1) Where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee (hereinafter referred to as the first-mentioned person) and subsequently during any previous year, (a) the first-mentioned person has obtained, whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof, the amount obtained by such person or the value of benefit accruing to him shall be deemed to be profits and gains of business or profession and accordingly chargeable to income-tax as the income of that previous year, whether the business or profession in respect of which the allowance or deduction has been made is in existence in that year or not, or xxx 15) On a perusal of the said provision, it is evident that it is a sine qua non that there should be an allowance or deduction claimed by the assessee in any assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee. Then, subsequently, during any previous year, if the creditor remits or waives any such liability, then the assessee is liable to pay tax under Section 41 of the IT Act. The objective behind this Section is simple. It is made to ensure that the assessee does not get away with a double benefit once by way of deduction and another by not being taxed on the benefit received by him in the later year with reference to deduction allowed earlier in case of remission of such liability. It is undisputed fact that the Respondent had been paying interest at 6% per annum to the KJC as per the contract but the assessee never claimed deduction for payment of interest under Section 36 (1) (iii) of the IT Act. In the case at hand, learned CIT (A) relied upon Section 41 (1) of the IT Act and held that the Respondent had received amortization benefit. Amortization is an accounting term that refers to the process of allocating the cost of an asset over a period of time, hence, it is nothing else than depreciation. Depreciation is a reduction in the vali of an asset over time, in particular, to wear and tear. Therefore, the deduction claimed by the Respondent in previous assessment years was due to the depreciation of the machine and not on the interest paid by it. 16) Moreover, the purchase effected from the Kaiser Jeep Corporation is in respect of plant, machinery and tooling equipments which are capital assets of the Respondent. It is important to note that the said purchase amount had not been debited to the trading account or to the profit or loss account in any of the assessment years. Here, we deem it proper to mention that there is difference between 'trading liability' and 'other liability'. Section 41(1) of the IT Act particularly deals with the remission of trading liability. Whereas in the instant case, waiver of loan amounts to cessation of liability other than trading liability. Hence, we find no force in the argument of the Revenue that the case of the Respondent would fall under Section 41(1) of the IT Act. 17) To sum up, we are not inclined to interfere with the judgment and order passed by the High court in view of the following reasons: (a) Section 28(iv) of the IT Act does not apply on the present case since the receipts of Rs 57,74,064/- are in the nature of cash or money. (b) Section 41(1) of the IT Act does not apply since waiver of loan does not amount to cessation of trading liability. It is a matter of record that the Respondent has not claimed any deduction under Section 36 (1) (iii) of the IT Act qua the payment of interest in any previous year." 5.4 From the facts of the case, it is seen that the amount was received by assessee as advance was in terms of 'money' and not as any non- monetary benefit. Further, the same is not held as cessation of trading liability by the Assessing Officer himself also. In view of the factual position as above, applying the ratio as laid down by the Hon'ble Supreme Court (supra), it is held that the amount of Rs.26,84,71,235/- foregone as 'debt forgiveness' is not taxable in the hands of the assessee. Accordingly, the addition made is not warranted the same is deleted.”

Aggrieved by the order of LD.CIT(A), the Revenue is in appeal before the Tribunal.

Ms. Narmada, Ld. CIT-DR has submitted that the LD.CIT(A) is erred in appreciating the facts that the present case is different from the case of CIT Vs. Mahindra and Mahindra Ltd (supra), because the assessee during the assessment proceedings has only questioned the year of taxation and has not disputed the amount of taxation, which is established by the fact that, the assessee itself has declared the disputed amount as income for the assessment year 2011-12. The LD.CIT(A) further submitted that, the Assessing Officer has established that all the crucial conditions pursuant to the Settlement Agreement dt.13.01.2010 happened during the Financial Year 2009-10 itself, and hence, the income should be taxed in A.Y. 2010-11. The LD.CIT-DR further submitted that, the LD.CIT(A) erred in not appreciating the fact that the income should be assessable as ‘business profits’ under Section 28(i) of the Act, as the amount of trade advances were appropriated by the assessee for the work already done by it for arranging 453 acres of land and other works, as mentioned in the clause 2.3.1 of the Financial Terms, Conditions and Timelines of the Settlement of Agreement dt.13.01.2010. Although, the Assessing Officer has brought out clear facts in light of relevant agreement between the parties and the provisions of Section 28(iv) and Section 28(i) of the Act, but the LD.CIT(A) simply deleted the addition made by the Assessing Officer by following the decision of Hon'ble Supreme Court in the case of CIT Vs. Mahindra and Mahindra Ltd. (supra) even though, the facts of the present case are entirely different from the facts considered by the Hon'ble Supreme Court in the above case. Therefore, she submitted that the addition made by the Assessing Officer should be sustained.

The learned counsel for the assessee, Shri K.C. Devdas, C.A., on the other hand, supporting the order of LD.CIT(A) submitted that there is no dispute with regard to the fact that the assessee is part of arrangements between Smith Group and M/s. Amsri Principals and has received advance from Smith Group for procurement of land. It is also an admitted fact that because of dispute between the parties, a Settlement Agreement dt.13.01.2010 was entered into between Smith Group and M/s. Amsri Principals and as per the said Settlement Agreement, M/s. Amsri Principals shall transfer the shareholdings to Smith Group for a consideration to be paid, as specified in the agreement and further, Smith Group will forgive advance receivable from M/s. Amsri Group of Companies, including the assessee. The assessee has given effect to said Settlement Agreement upon fulfillment of conditions as specified therein by handing over the land documents of Kondapur in the month of June, 2010 and upon receipt of consideration for transfer of equity shares of Smith Group of companies, and has given effect to said transactions in the books of accounts for the F.Y. 2010-11 relevant to assessment year 2011-12. Further, the advances due to Smith Group of Companies have been converted into loans with interest vide Call Option Agreement dt.24.05.2008 and as per the said agreement, the amount received from Smith Group of companies as advance for procurement of land become loan for the assessee company. Further, on settlement between the parties, the loan due to Smith Group of companies has been waived off by the Smith Group and therefore, the same cannot be considered, as ‘business profit’ in terms of Section 28(iv) of the Act. The LD.CIT(A) after considering the relevant facts has rightly deleted the addition made by the Assessing Officer on the ground that the benefit derived by the assessee on account of debt forgiveness, in pursuant to Settlement Agreement dt.13.01.2010, is a monetary benefit, and therefore, provisions of Section 28(iv) of the Act, has no application and the factual finding recorded by the LD.CIT(A), is supported by the decision of Hon'ble Supreme Court in the case of CIT Vs. Mahindra and Mahindra Ltd (supra). Therefore, he submitted that there is no error in the reasons given by the LD.CIT(A) to delete the addition made towards ‘debt forgiveness’ as business profit under Section 28(iv) of the Income Tax Act, 1961 and their order should be upheld.

The learned counsel for the assessee further referring to provisions of Section 28(i) of the Act, submitted that, although, the Revenue has raised additional ground in light of the provisions of Section 28(i) of the Act, but fact remains that said provisions can be invoked only when any benefit derived by the assessee on account of business or profession which was carried on by the assessee at any time during the previous year. In the present case, the assessee has received interest free advance from Smith Group of companies for procurement of land and the same has been converted into loan with interest vide Call Option Agreement dt.24.05.2008 and therefore, the said loan cannot be considered as trading advances to invoke provisions of Section 28(i) of the Act. Therefore, he submitted that there is no merit in the arguments of the LD.CIT-DR in light of additional grounds filed by the Revenue and the same needs to be rejected.

We have heard both the parties, perused the material on record and gone through the orders of the authorities below. There is no dispute with regard to the role of the assessee firm in the transactions between the Smith Group of Companies and M/s. Amsri Principals. As narrated in the facts of the case in the earlier paragraphs of this order, the assessee firm is part of an arrangement between Smith Group of Companies and M/s. Amsri Principals and as part of the arrangement between the parties, the assessee has received interest free advances from Smith Group of Companies for procurement of land. As a result, the unutilized advance received from Smith Group of Companies as on 31.03.2010 was at Rs.26,84,71,235/-. The assessee has derived benefit on account of ‘debt forgiveness’ by Smith Group of Companies in pursuant to Settlement Agreement dt.13.01.2010. The assessee has given effect to said transactions and recorded the entries in books of accounts in F.Y. 2010-11 and relevant to assessment year 2011-12 and credited the benefit derived from Smith Group of Companies into profit and loss account. The Assessing Officer assessed ‘debt forgiveness’ received from Smith Group of Companies in pursuant to Settlement Agreement dt.13.01.2010, as business profits in terms of Section 28(iv) of the Act for AY 2010-11 and held that the assessee has derived benefit on account of ‘debt forgiveness’ which is for the business connection of the assessee firm had with Smith Group of Companies and its transactions and therefore, any benefit derived in pursuant to business or profession is taxable, as profits and gains of business or profession. The Assessing Officer has discussed the issue at length in light of relevant agreements between the parties, terms and conditions of Settlement Agreement dt.13.01.2010 and provisions of Section 28(iv) of the Act, and came to the conclusion that benefit derived by the assessee firm in pursuant to Settlement Agreement dt.13.01.2010 is business profit taxable under the head income from business or profession in terms of Section 28(iv) of the Act.

We have given our thoughtful consideration to the reasons given by the Assessing Officer to make addition towards debt forgiveness amounting to Rs.26,84,71,235/- as business profits under Section 28(iv) of the Act and also considered the reasons given by the LD.CIT(A) to delete the addition made by the Assessing Officer in light of various arguments advanced by the learned counsel for the assessee and counter arguments made by the LD.CIT-DR present for the Revenue. We find that LD.CIT(A) has discussed the issue and allowed the relief to the assessee on additional grounds filed by the assessee in light of the decision of Hon’ble Supreme Court in the case of CIT Vs. Mahindra and Mahindra Ltd. (supra). Therefore, it is necessary to understand, provisions of Section 28(iv) of the Act. The provisions of section 28(iv) are applicable, only when the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession. On a plain reading of Section 28(iv) of the Act, prima facie, it appears that for the applicability of the said provisions, the income which can be taxed shall arise from the business or profession. Further, in order to invoke the provisions of Section 28(iv) of the Act, the benefit which is received has to be in some other form other than in the shape of money. In the present case, the benefit received by the assessee is debt forgiveness and it is in monetary benefit. Since the benefit received by the assessee is in the form of money being interest free advance received by the assessee firm from Smith Group of companies and subsequently converted into loans, the same cannot be treated as any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession. In our considered view, the findings recorded by the LD.CIT(A) in light of the decision of Hon'ble Supreme Court in the case of CIT Vs. Mahindra and Mahindra Ltd (supra), is in accordance with the law going by the facts of the present case because whatever the benefit derived by the assessee firm on account of debt forgiveness in pursuant to the Settlement Agreement dt.13.01.2010, is not a value of any benefit or perquisite, whether convertible into money or not, arising from business or exercise of a profession. In order to invoke provisions of Section 28(iv) of the Act, there should be a business connection between the benefit and the business and further, the benefit which is received should be in kind or some other form other than the shape of money. Since the benefit derived by the assessee in the form of money is monetary benefit, in our considered view, the provisions of Section 28(iv) of the Act, cannot be applied and this principle is supported by the decision of Hon'ble Supreme Court in the case of CIT Vs. Mahindra and Mahindra Ltd (supra).

Further, as held by the Hon'ble Supreme Court in the above case, there is no scope for applicability of Section 41(1) of the Act, because in order to apply provisions of Section 41(1) of the Act, the first mentioned person has obtained, whether in cash or in any manner whatsoever any amount in respect of such loss or expenditure or some benefit in respect of such trade and liability by way of remission or cession of liability thereof, the amount obtained by such person or the value of benefit shall be deemed to be profits and gain of business or profession and accordingly, chargeable to tax as the income of that previous year whether the business or profession in respect of which the allowance or deduction has been made is in existence in that year or not. On a perusal of the said provisions, it is evident that it is a sine qua non there should be any allowance or deduction claimed by the assessee in any assessment for any assessment year in respect of loss or expenditure or trading liability and further subsequently during any previous year, if the creditor remits or waives off any such liability, then the assessee is liable to pay tax under Section 41(1) of the Act. In the present case, the benefit derived by the assessee in pursuant to Settlement Agreement dt.13.01.2010 is a debt forgiveness being loans received from Smith Group of Companies and therefore, the same cannot be treated as trading liability to invoke provisions of Section 41(1) of the Act. In any case, it is not the case of the Assessing Officer that the provisions of Section 41(1) of the Act, is applicable, because the Assessing Officer never invoked Section 41(1) of the Act.

Coming back to the additional grounds filed by the Revenue in light of provisions of Section 28(i) of the Act. The Revenue has raised additional grounds and challenged that the amount of advance received from Smith Group of Companies was appropriated by the assessee for the work done by it and other works as mentioned in the clause 2.3.1. of the Terms and Conditions of Settlement Agreement dt.13.01.2010 and therefore, it shall be assessable as business profits under Section 28(i) of the Act. In our considered view, there is no merit in the additional grounds taken by the assessee because what was derived by the assessee firm is a ‘debt forgiveness’ which is nothing but a loan, as per Call Option Agreement dt.24.05.2008 and from the above agreement, the outstanding advances from Smith Group of Companies has been treated as loans and this fact is further strengthened by the terms and conditions of the agreement where the agreement clearly specifically quantifies the amount of loan and accrued interest up to a certain date. Therefore, in our considered view, the provisions of Section 28(i) of the Act cannot be pressed into service, as contended by the learned CIT-DR in light of the additional grounds filed by the Revenue.

In this view of the matter and considering the facts and circumstances of the case, we are of the considered view that the benefit derived by the assessee on account of debt forgiveness in pursuant to Settlement Agreement dt.13.01.2010, is not a business profit, as specified in Section 28(iv) of the Act i.e., the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession and therefore, in our considered view, there is no error in the findings recorded by the LD.CIT(A) to delete the addition made by the Assessing Officer towards benefit derived by the assessee on account of ‘debt forgiveness’ as business profits under Section 28(i) of the Act. Thus, we are inclined to uphold the findings of LD.CIT(A) and dismiss the appeal filed by the Revenue.

In the result, the appeal of Revenue for A.Y. 2010-11 is dismissed. of 2018 for A.Y. 2011-12

The grounds raised

The Additional grounds raised

In this assessment year, the assessee has filed a return of income, in response to a notice issued u/s 153A of the Act, on 07.08.2015 declaring a loss of Rs.70,85,093/-. In the said return of income, the assessee has considered additional income being ‘forgiveness of debts” of Rs.26,75,04,477/- on account of Settlement Agreement dt.13.01.2010 with Smith Group. The assessee also claimed certain expenses from two projects amounting to Rs.27,55,09,803/- against income credited to profit and loss account and declared net loss of Rs.70,85,093/-. The Assessing Officer assessed ‘forgiveness of debts’ for A.Y. 2010-11 on substantive basis and therefore, income declared by the assessee being ‘forgiveness of debts’ for A.Y. 2011-12 has been assessed protectively. The Assessing Officer has also rejected the additional claim of expenses, in respect to two projects amounting to Rs.27,55,09,803/- on the ground that the assessee cannot make a fresh claim of expenditure in the return of income filed in response to notice under Section 153A of the Act, in case the said claim was not made in the original return of income filed under Section 139(1) of the Act.

On appeal before the LD.CIT(A), the LD.CIT(A) has allowed relief to the assessee on the grounds that the assessee can make a fresh claim of deduction or expenditure in the return of income filed in response to notice u/s 153A of the Act.

Aggrieved by the order of LD.CIT(A), the Revenue is in appeal before the Tribunal.

Ms. M. Narmada, Ld. CIT-DR submitted that the LD.CIT(A) is erred in allowing the relief to the assessee by holding that the assessee can make a fresh claim of deduction towards expenditure in the return of income filed in response to notice u/s 153A of the Act, without appreciating the fact that once the assessment is unabated / concluded as on the date of search, no fresh claim can be made by the assessee. Since the assessment year in question is unabated and concluded as on the date of search i.e., 09.04.2014, the fresh claim made by the assessee in the return of income filed in response to notice u/s 153A of the Act, is invalid and cannot be allowed. The LD.CIT(A) without appreciating the relevant facts, simply allowed relief to the assessee. Therefore, she submitted that the addition made by the Assessing Officer towards disallowance of expenses should be upheld. In this regard, she relied upon the decision of ITAT Hyderabad, Special Bench in the case of DCIT Vs. M/s. Sew Infrastructure Limited [2024] 167 taxmann.com 446 (Hyderabad - Trib.) (SB).

The learned counsel for the assessee Shri K.C. Devdas, C.A., on the other hand, submitted that there is no dispute with regard to the fact that a search and seizure operation under Section 132 of the Act, was conducted in the case of the assessee on 09.04.2014 and as on the date of search, the assessment for A.Y. 2011-12 is unabated/ concluded, because a time limit for issuance of notice under Section 143(2) of the Act, has been expired on 30.09.2012. But, fact remains that since the Assessing Officer has made addition towards ‘debt forgiveness’ being waiver of loan from Smith Group as income of the assessee under Section 28(iv) of the Act, for A.Y. 2010-11 on substantial basis, any protective addition made towards said income and consequent disallowance of expenditure against the said income does not survive under the law, therefore, he submitted that the addition made by the Assessing Officer towards expenditure cannot be sustained.

We have heard both the parties, perused the material on record and gone through the orders of authorities below. It is an admitted fact that a search and seizure operation under Section 132 of the Act was conducted on 09.04.2014 and as on the date of search, the assessment for A.Y. 2011-12 has been completed/ unabated, because the time limit for issuance of notice under Section 143(2) of the Act, has expired on 30.09.2012 i.e., before the date of search on 09-04-2014. Once the assessment is unabated / concluded as on the date of search, the assessee cannot make any fresh claim of deduction towards expenditure, unless the said claim is based on incriminating material found as a result of search and this principle is supported by the decision of ITAT Hyderabad Special Bench in the case of DCIT Vs. M/s. Sew Infrastructure Limited (supra), where the Tribunal has held as under :

In the present case, since the assessment is unabated / concluded as on the date of search, the assessee cannot make fresh claim of deduction towards any expenditure, if such claim is not based on any incriminating material found as a result of search. Since the fresh claim made by the assessee is not based on any incriminating material found as a result of search, in our considered view, the fresh claim towards expenditure cannot be allowed as deduction. Similarly, the Assessing Officer also cannot make any addition on the basis of a fresh claim made by the assessee in the return of income filed in response to notice under Section 153A of the Act. In other words, income reported by the assessee and expenditure claimed and disallowed by the AO need to be ignored. If, income and expenditure, both are ignored, then the loss declared by the assessee becomes Nil and income reported in the return filed u/s 153A goes back to income returned in the original return filed by the assessee. Further, in the present case, the assessee has treated ‘debt forgiveness’ as income and as against this income claimed various expenditure and reported net loss in the return of income filed on 07.08.2015. Since, income pertaining to ‘debt forgiveness’ has been assessed for A.Y. 2010- 11 on substantive basis, the assessment of same income for the assessment year 2011-12 on protective basis cannot be sustained. Therefore, we direct the Assessing Officer to exclude the income declared by the assessee and assessed by the Assessing Officer towards ‘debt forgiveness’ as income for the assessment year 2011- 12. Further, once the income has been excluded for the assessment year 2011-12, then loss declared by the assessee would increase to that extent. Therefore, even if disallowance of expenditure is taken into account, it is only reducing the loss as reported by the assessee, but it does not lead to an assessment of income of Rs. 27,55,09,803 as computed by the Assessing Officer. Therefore, on this count also the addition made by the AO towards disallowance of expenditure cannot be sustained. Since the fresh claim made by the assessee towards income and expenditure is not in accordance with the provisions of Section 153A of the Act, in our considered view, the expenditure claimed by the assessee and disallowed by the Assessing Officer cannot be sustained. Thus, we direct the Assessing Officer to delete the addition made towards disallowance of expenditure of Rs. 27,55,09,803/-.

In the result, the appeal of the Revenue for A.Y. 2011-12 is dismissed.

To sum up, both the appeals of the Revenue are dismissed.