Section 153A: On-Money Profit @15% Sustained, TP Addition Deleted, Bogus Purchase Confirmed

In this large group litigation covering AYs 2013-14 to 2016-17, Revenue filed four appeals & Assessee filed four cross-objections against the consolidated order of CIT(A)-56, Mumbai, arising out of search assessments framed u/s 153A r.w.s. 143(3)/144C(3). All matters were heard together by Tribunal.

Assessee first raised a jurisdictional objection that DCIT had no pecuniary jurisdiction to complete assessment because returned income was a loss & CBDT Instruction 1/2011 required assessment by an ITO. Tribunal rejected this contention, holding that in search cases CBDT’s pecuniary instructions do not apply & search assessments are validly handled only by ACIT/DCIT. Delhi High Court in Chaudhury Skin Trading Co. & Gujarat High Court in Kamlesh Rajnikant Shah were followed; hence the objection was dismissed.section

Assessee next contended that for earlier unabated years no incriminating material existed, relying on Abhisar Buildwell (SC). Tribunal rejected this ground because specific seized documents (Annexure A-4, page 18) contained entries of cash on-money on sale of flats/shops, and additions were in fact made on the basis of such material. CIT(A)’s finding on this issue was upheld.

On the key issue of on-money receipts of ₹66.68 lakh noted during search for AY 2013-14, AO added the entire amount. CIT(A), relying on Tribunal’s earlier order in Ekta Housing Pvt Ltd & Gujarat High Court in Panna Corporation, held that only profit embedded in such receipts can be assessed, and applied 15%. Tribunal upheld this reasoning, distinguishing Revenue’s reliance on Alik Akbar Samai Choudhury, noting that in the Ekta Group’s own case 15% profit rate had judicial backing. Thus addition was rightly restricted to ₹10,00,200.

For AY 2014-15, CIT(A) deleted addition of ₹11,34,400 relating to provision for interest on delayed service tax, finding it to be an ascertained liability subsequently paid. Tribunal upheld this finding relying on Supreme Court decision in Lachmandas Mathuradas holding such interest to be compensatory in nature.

For AY 2015-16, bogus purchase of ₹44,72,989 admitted during search was reduced from WIP. CIT(A) held such purchases were related to AY 2015-16 & AO was right in reducing WIP in that year, while directing consequential adjustment in AY 2017-18. Tribunal upheld CIT(A), rejecting Assessee’s plea that only GP should be added, holding that admission of bogus purchases & failure to substantiate claims attracted the principle laid down in Bombay High Court decision in Kanak Impex, permitting 100% addition.

On Transfer Pricing adjustment of interest on CCDs issued to AE, CIT(A) adopted SBI PLR + 300 bps, following Granite Gate Properties (Del ITAT), & held that Assessee’s rate of 19.17% was within the permissible ±5% range u/s 92C(2). Tribunal agreed, observing that TPO’s 75 bps risk-premium addition to PLR was arbitrary & unsupported by expert analysis, whereas CIT(A)’s approach was judicially supported. Entire TP addition of ₹1.31 crore was deleted.

Accordingly, Revenue’s appeals were dismissed in full except to the extent CIT(A)’s reliefs were upheld, and Assessee’s cross-objections were largely dismissed except consequential directions. The composite order resulted in partial relief to Assessee on TP & on-money issues, with bogus purchase disallowance sustained.