By TIOL News Service

AHMEDABAD, MAY 12, 2018: THE ISSUE BEFORE THE BENCH IS - Whether deletion of addition by the Tribunal for a block period, in lack of supporting evidences, can effect addition in current AY, which is based on in dependant findings. VERDICT IS NO.

Facts of the case

A search operation was carried out in the case of assessee-firm and accordingly, it filed return u/s 153A for a block period. . However, the AO was not satisfied and made addition for such period. The AO also made assessment for the relevant current AY and made disallowance of interest payment, unexplained cash credit and GP addition. The AO made such disallowance on the ground that loan transaction shown by the assessee itself was not genuine. On assessee's appeal, the CIT(A) granted partial relief under other two heads but confirmed the disallowance of interest expenditure. He had called for remand report and confirmed the AO's view that the loan transaction was not genuine and therefore, interest expenditure could not be recognised. On further appeal, the Tribunal reversed the view of the Revenue authorities on the ground that the legality of the loan transactions was decided against the Revenue in the earlier AYs.

On hearing the matter, the High Court held that,

++ the assessments for the assessment years i.e 2007-2008, 2008-2009 and 2009-2010 under section 153A of the Act would have entirely different purport and sweep. The Tribunal was justified in deleting the additions in those years which are not based on materials found during the search. Had the addition in the present year, which was outside of the assessment under section 153A of the Act, made by the Assessing Officer on the same basis, the Tribunal was perhaps right in deleting such additions also. However, the Assessing Officer in the present year had examined the nature of loan transaction and come to definite finding that the same was not genuine. CIT(Appeals) reexamined this issue who called for the remand report and again came to the same conclusion. While therefore, for the assessment year 2010-2011, the Assessing Officer and CIT(Appeals) had correctly come to the conclusion that loan transaction itself was not genuine, the question of recognising interest expenditure on such loan transaction would not arise. Had the Tribunal disturbed such findings and thereafter given the relief to the assessee, the issue would stand on a different footing. Instead the Tribunal merely proceeded on its declaration for the earlier assessment years that the addition under section 68 would not survive since it was not relatable to any material found during the search. The Tribunal's findings and conclusions for the earlier years concerning the assessments under section 153A of the Act were independent and severable from the exercise undertaken by the Assessing Officer for the current assessment year 2010-2011 during the course of scrutiny assessment under section 143(3) of the Act. The Assessing Officer had come to independent findings which were confirmed by CIT(Appeals). The Tribunal had not disturbed these findings. Deletion of disallowance of interest was therefore, not correct.

(See 2018-TIOL-885-HC-AHM-IT)