2014 (1) TMI 1702 - AT - Income Tax

Validity of reassessment under Section 153A - addition of gifts - whether any incriminating materials were found in the course of search? - Held that - No incriminating material was found in the course of search and particulars/details were filed along with returns of income whose assessments were already completed. Therefore, there is no justification for the Assessing Officer to reconsider those issues in the assessments passed under Section 153A. In fact, the Assessing Officer is contemplating a review of the assessments already made by him prior to the date of search. A review is not permissible under the statute. What is interesting in the present case is that the assessments for assessment year 2005-06 have been completed under Section 143(3). Inspite of the scrutiny assessment, Revenue has not sought investigation on the question of gifts. Therefore, there cannot be second inning in the course of assessment contemplated under Section 153A. Thus as no incriminating materials were found in the course of search and as such, the question of gifts cannot be considered in the assessment completed under Section 153A, since the returns were filed and assessments were completed thereon, well before the search - Decided in favour of assessee

Issues Involved:
1. Legality of additions made under Section 153A of the Income-tax Act, 1961.
2. Validity of treating gifts received by the assessees as unexplained credits.
3. Validity of addition based on the difference in cost of construction of a commercial building.

Detailed Analysis:

1. Legality of Additions Made Under Section 153A:

The appeals concern the legality of additions made by the Assessing Officer under Section 153A following a search conducted on January 29, 2009. The Tribunal noted that the assessees had filed regular returns for the assessment years 2003-04, 2004-05, and 2005-06, and the assessments were completed before the search. The critical issue was whether the Assessing Officer could reassess items already disclosed in the original returns without any incriminating material found during the search.

The Tribunal referred to the judgment of the Hon'ble Rajasthan High Court in Jai Steel (India) v. Assistant Commissioner of Income Tax, which held that reassessment under Section 153A is permissible only if incriminating material is found during the search. The Tribunal also cited the ITAT Special Bench decision in All Cargo Global Logistics Ltd. v. Deputy Commissioner of Income Tax, which clarified that reassessment under Section 153A is only justified if incriminating material is found during the search.

The Tribunal concluded that no incriminating material was found during the search, and the issues of gifts and construction costs were already disclosed in the original returns. Therefore, the reassessment under Section 153A was not justified.

2. Validity of Treating Gifts as Unexplained Credits:

The Assessing Officer had treated gifts received by the assessees from persons residing outside India as unexplained credits under Section 68 of the Income-tax Act, 1961. The assessees argued that the gifts were genuine, supported by confirmation letters from donors, and funds were transferred through banking channels.

The Tribunal observed that the gifts were disclosed in the original returns and no new incriminating material was found during the search. The Tribunal referenced the Rajasthan High Court's decision in Jai Steel (India) and the ITAT Special Bench decision in All Cargo Global Logistics Ltd., which emphasized that reassessment of concluded assessments is only permissible if incriminating material is found during the search.

The Tribunal directed the assessing authority to delete the additions made against the gifts as they were already disclosed and no incriminating material was found during the search.

3. Validity of Addition Based on Difference in Cost of Construction:

The assessees declared the cost of construction of a commercial building at Rs. 2,12,20,060/-, but the Departmental Valuation Officer (DVO) later determined the cost at Rs. 3,75,00,000/-, resulting in a difference of Rs. 1,62,79,940/-. The Assessing Officer added this differential amount in the hands of the assessees.

The Tribunal noted that the DVO's report was not available at the time of the original assessment under Section 143(3) and came to light only after the assessments were completed. The Tribunal held that the DVO's report was not an incriminating material found during the search and, therefore, could not be the basis for reassessment under Section 153A.

The Tribunal cited the Hon'ble Madras High Court's decision in Commissioner of Income Tax v. V.T. Rajendran, which held that the difference between the cost shown by the assessee and the estimate by the DVO cannot be a ground for reassessment. Consequently, the Tribunal directed the deletion of the additions made on account of the cost of construction.

Conclusion:

The Tribunal allowed the appeals filed by the assessees, holding that the additions made under Section 153A were not justified as no incriminating material was found during the search. The Tribunal directed the deletion of the additions related to gifts and the difference in the cost of construction.

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