2013 (11) TMI 1589 - AT - Income Tax

Assessment u/s 153A - Held that - The undisputed fact in this case is that there is no incriminating material belonging to the assessee which was found during the course of search in the premises of Rajdarbar group of companies. This fact is evident from the impugned assessment order itself. There is no indication of any material having been found in the course of search and there is no income which was sought to be added based on the search material.

Issues Involved:
1. Jurisdiction of the Assessing Officer under Section 153C.
2. Validity of the assessments made under Section 153C/143(3) without incriminating material.
3. Disallowance of preliminary expenses under Section 35D.
4. Levy of interest under Section 234B.
5. Ad-hoc disallowance of expenses under Section 37.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Assessing Officer under Section 153C:
The assessee challenged the jurisdiction of the Assessing Officer (A.O.) under Section 153C, arguing that no documents belonging to the assessee were seized during the search of the Rajdarbar group. The Tribunal noted that the satisfaction note recorded by the A.O. stated that a hard disk containing books of accounts of the assessee was found. However, upon examination, it was found that the hard disk only contained a confirmation of accounts and some ledger entries, which do not qualify as books of accounts. The Tribunal concluded that the issuance of notice under Section 153C was bad in law as no incriminating material belonging to the assessee was found during the search.

2. Validity of the Assessments Made under Section 153C/143(3) Without Incriminating Material:
The Tribunal observed that the assessments for the years in question were not based on any incriminating material found during the search. The disallowances were made based on the interpretation of various sections of the Act and the regular return of income. The Tribunal referred to several case laws, including the judgments of the ITAT Delhi in the cases of DSL Properties (P) Ltd. and Therapeutic India (P) Ltd., which held that in the absence of incriminating material, the A.O. cannot make additions under Section 153C. Consequently, the Tribunal quashed the assessments for the years 2004-05 to 2008-09.

3. Disallowance of Preliminary Expenses under Section 35D:
For the Assessment Years 2004-05, 2005-06, and 2007-08, the A.O. disallowed the preliminary expenses claimed under Section 35D. The Tribunal noted that the disallowance was not based on any material found during the search. Since the assessments were quashed on the grounds of invalid jurisdiction under Section 153C, the disallowance of preliminary expenses was also set aside.

4. Levy of Interest under Section 234B:
The assessee contested the levy of interest under Section 234B. Since the primary assessments were quashed, the Tribunal held that the consequential levy of interest under Section 234B also could not be sustained.

5. Ad-hoc Disallowance of Expenses under Section 37:
For the Assessment Year 2009-10, the A.O. made an ad-hoc disallowance of Rs. 15 lakhs under Section 37, citing the assessee's failure to justify the expenses. The Tribunal found that the disallowance was not based on any material evidence and was made on surmises and conjectures. The Tribunal deleted the ad-hoc disallowance, stating that the assessee had produced all necessary evidence to support the expenditure.

Conclusion:
The Tribunal allowed the appeals for the Assessment Years 2004-05 to 2008-09, quashing the assessments made under Section 153C/143(3) due to the absence of incriminating material. For the Assessment Year 2009-10, the Tribunal partly allowed the appeal, setting aside the disallowance under Section 14A for fresh consideration and deleting the ad-hoc disallowance of Rs. 15 lakhs under Section 37.

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