2016 (8) TMI 1233 - AT - Income Tax

Assessment framed under section 153A - whether addition could be made in the absence of any incriminating material in those years where no assessment proceedings were pending and assessment had been made u/s 143(1)/143(3)? - disallowing interest on housing loan - Held that - The understanding of the learned D.R. that by including only undisclosed income discovered as a result of search, in the assessment framed undersection 153A in those cases where assessment have been completed earlier under section 143(3)/143(1) of the Act, the total income , is not assessed is misplaced. What section 153A prescribes is that where assessments are completed, they shall be reopened, incomes relating to incriminating material found during the search determined and added to the already assessed income and thus total income computed. Thus, restricting the addition made to the extent of incriminating material would not mean, that total income is not determined. Sh Goyal admitted that certain incriminating documents relating to various investment companies, excess cash and jewellery was found at his residence. Admittedly there is no reference in the statement to any document found, which revealed that the assessee had wrongly claimed interest on loan taken for his house property, which was the only disallowance made in the assessment order passed u/s 153A for the impugned year. Moreover we find that the disallowance was made for want of evidence and not on the basis of any incriminating material found during search. Further we find that the statement is general with no reference to any specific document or asset found during search and the assessee has admittedly surrendered ₹ 11 crore on account of the same and paid taxes thereon. The statement therefore cannot be stated to be incriminating material for the purpose of disallowing interest on housing loan. In view of the above the stand of the Revenue that the statement of Sh. Kishan Kumar Goyal constituted incriminating material for the purpose of making disallowance of interest on housing loan u/s 153A cannot be accepted. - Decided in favour of assessee.

Issues Involved:
"Whether the addition made to the income of the assessee for the said assessment years was not sustainable because no incriminating material concerning such additions was found during the course of search and further no assessments for such years were pending on the date of search."

Detailed Analysis:

1. Background and Procedural History:
These 37 appeals were consolidated and decided by a common order as they involved a common issue. The assessee’s income had either been initially assessed under section 143(3) or the return filed was accepted under section 143(1), and the time for issuing notice under section 143(2) had expired. No incriminating material was found during the search, and the additions made during the assessment under section 153A did not relate to any incriminating material found during the search.

2. Admission of Additional Ground:
For certain assessees, the ground regarding the addition being unsustainable in the absence of incriminating material was raised for the first time before the Tribunal. The Tribunal admitted this ground for adjudication based on the Supreme Court decision in NTPC Ltd. Vs CIT (1998) 229 ITR 383.

3. Lead Case Analysis (Mala Builders Pvt. Ltd.):
The assessee filed its return of income declaring ?2,89,220/-, which was accepted under section 143(1). During the search on 17.03.2010, no incriminating material was found. The Assessing Officer, however, assessed the income at ?8,85,515/- by disallowing interest claimed under section 24(b) due to lack of evidence.

4. Contentions of the Assessee:
The assessee argued that as per various court decisions, in cases where assessments were completed and no incriminating material was found during the search, no additions could be made under section 153A. The assessee relied on several judicial precedents, including CIT Vs. M/s Murli Agro Products Ltd., CIT Vs. Continental Warehousing Corporation, and CIT Vs. Kabul Chawla.

5. Department’s Arguments:
The Department argued that:
- The Chandigarh Bench of the ITAT had decided against the assessee in a similar case.
- The Supreme Court had granted SLP against the High Court ruling in Continental Warehousing Corporation.
- The procedure under section 153A was designed to assess/reassess the total income, not limited to incriminating material.
- The non-obstante clause in section 153A mandated the assessment of total income for all six years.
- Statements recorded during the search indicated the presence of incriminating material.

6. Tribunal’s Findings:
The Tribunal found that:
- On the date of the search, no assessment proceedings were pending for the impugned year.
- The only addition made pertained to disallowance of interest under section 24(b) due to lack of evidence, not based on any incriminating material found during the search.
- Various High Courts have held that completed assessments can only be interfered with based on incriminating material found during the search.

7. Judicial Precedents:
The Tribunal cited several High Court decisions, including:
- CIT Vs. M/s Murli Agro Products Ltd., which held that finalized assessments cannot be disturbed unless materials gathered during the search established otherwise.
- CIT Vs. Anil Kumar Bhatia, which interpreted section 153A to mean that assessments can be reopened only based on undisclosed income unearthed during the search.
- CIT Vs. Continental Warehousing, which upheld that additions under section 153A must be based on material found during the search.
- CIT Vs. Kabul Chawla, which summarized the legal position that completed assessments can only be interfered with based on incriminating material unearthed during the search.

8. Conclusion:
The Tribunal concluded that in the absence of any incriminating material found during the search and with the assessment proceedings not abated at the time of the search, the Assessing Officer had no jurisdiction to make any addition under section 153A. Consequently, the appeals filed by the assessees were allowed, and the additions made in the orders under section 153A/143(3) were deleted. The Departmental appeals were dismissed.

9. Final Order:
The appeals filed by the assessees and cross objections were allowed, and all additions were deleted. The Departmental appeals were dismissed. The order was pronounced in the open court.

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