2016 (12) TMI 1576 - HC - Income Tax

Validity of proceeding under Section 153A - advance to the Associated Enterprise on interest-free basis ought to have attracted an addition - Held that - The scrutiny assessments concluded earlier were based upon queries. The assessee had disclosed all the materials which came to be reviewed subsequently in Section 153A proceedings. Thus, having regard to the decision in Kabul Chawla (2015 (9) TMI 80 - DELHI HIGH COURT)in the absence of seizure of any incriminating material, the ITAT, in this Court s opinion, did not fall into error in quashing the proceedings. The appeal is accordingly dismissed.

Summary

Issues:
1. Validity of the Income Tax Appellate Tribunal's decision setting aside assessments made by the Transfer Pricing Officer/Assessing Officer after search and seizure proceedings under Section 153A of the Income Tax Act, 1961.
2. Application of the rule in CIT v. Kabul Chawla regarding proceedings under Section 153A in the absence of incriminating material.

Analysis:

1. The High Court addressed the issue of the validity of the decision by the Income Tax Appellate Tribunal (ITAT) to set aside assessments made by the Transfer Pricing Officer (TPO)/Assessing Officer (AO) after search and seizure proceedings under Section 153A of the Income Tax Act, 1961. The case involved scrutiny proceedings for Assessment Year 2008-09, where assessments were initially framed by the AO. Subsequently, search and seizure proceedings were conducted on the assessee's premises without any new incriminating material being found. The AO referred the matter to the TPO under Section 92C based on existing material, specifically regarding an advance to an Associated Enterprise on an interest-free basis. The TPO's findings led to an assessment order based on Arms' Length Price (ALP) determination. The Disputes Resolution Panel (DRP) reduced the rate of interest, and the ITAT quashed the assessment on the grounds that the rule in CIT v. Kabul Chawla was applicable due to the absence of incriminating material from the search and seizure proceedings.

2. The Court carefully examined the record and noted that the scrutiny assessments were initially based on queries, with all materials disclosed by the assessee later reviewed in the Section 153A proceedings. Considering the decision in Kabul Chawla, the Court agreed with the ITAT's decision to quash the proceedings, as no incriminating material was seized during the search and seizure. The Court found that the ITAT did not err in applying the rule from Kabul Chawla, which invalidated the Section 153A proceedings in the absence of such material. Consequently, the appeal made by the revenue was dismissed based on the Court's analysis and interpretation of the relevant legal principles and precedents.