Addition u/s 153A in amalgamated company relating to entries in books of amalgamating company prior to amalgamation unjustified

Citygold Education Research Limited Vs DCIT (ITAT Mumbai)

Held that the entries in the books of account of amalgamating companies prior to amalgamation cannot be part of the additions made under section 153A in the hands of the assessee (i.e. amalgamated company). Accordingly, additions deleted.

Facts- The assessee is a private limited company engaged in the business of disseminating and advance knowledge and promotes educational activities and to acquire, sell, construct, develop, promote or otherwise deal in the land, commercial, residential complexes, etc. A search action u/s. 132 of the Income-tax Act, 1961 was carried out in the case of Hubtown Limited and other group concerns, including the assessee, on 30/07/2019. Notice u/s. 153A was issued on 12/11/2020. In response to the said notices, the assessee filed a return of income declaring a total loss of Rs.72,15,826/-.

AO while completing the assessment u/s. 153A read with section 143(3) made addition towards disallowance of write off of assets/debts u/s. 37(1) of the Act. On appeal, the CIT(A) confirmed the additions made by the Assessing Officer. Aggrieved, the assessee is in appeal before the Tribunal.

Conclusion- Held that the disallowance of a claim made in the individual entity’s financials cannot be added as income in the hands of the assessee during the year which is prior to amalgamation. Further, we notice that the disallowance made is based on the amounts debited to the Profit and Loss account of these two companies and that the assessing officer has stated in the order under section 153A r.w.s.143(3) that the disallowance is done based on statement recorded from Shri. Sandeep N Gharat. Therefore the submission that the addition is made not based on any seized material but based on statement recorded has merits. Accordingly on this count also, we are of the view that the additions made by the Assessing Officer by way of disallowance under section 37(1) are not sustainable. In view of this, we delete the addition made by the Assessing Officer.

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