2016 (9) TMI 1333 - AT - Income Tax

Validity of assessment proceedings initiated u/s 153A - incriminating materials found - Held that - As per the ratio laid down by Hon ble Delhi High Court in case of Kabul Chawla (2015 (9) TMI 80 - DELHI HIGH COURT ), only pending assessment can abate and completed assessment remain unaffected unless Assessing Officer has any seized material that can justify the addition. In this case, return of income for the year under consideration was filed on 06.11.2007 has attained finality on passing the assessment order u/s 143(3) on 30.12.2008. As it is observed from the records placed before us that there has been no reference to any incriminating document in respect of the addition made by the Assessing Officer. The Assessing Officer has completed the assessment and made addition without there being any seized material / documents. The case of the assessee is squarely covered by the decision of CIT Vs Kabul Chawla (supra). For the reasons set out above, we uphold that legal issue raised by the assessee in the cross objection and hold the impugned assessment as null and void. - Decided in favour of assessee.

Summary

Issues:
1. Validity of assessment proceedings under section 153A of the Income Tax Act.
2. Addition of interest expenses and valuation of Work-in-Progress (WIP).

Issue 1: Validity of assessment proceedings under section 153A of the Income Tax Act:
The case involved cross-appeals by the assessee and the Revenue against the order of the Ld. CIT(A) for the Assessment Year 2007-08. The assessee challenged the initiation of assessment proceedings under section 153A, contending that no incriminating material was found during the search and seizure proceedings. The Ld. A.R. argued that since no assessment was pending at the time of the search, there was no basis for initiating proceedings under section 153A. The Hon'ble Delhi High Court's decision in CIT Vs Kabul Chawla was cited to support this argument. The tribunal observed that completed assessments can only be reopened if there is seized material justifying the addition. As no incriminating documents were referred to in the additions made by the Assessing Officer, the tribunal held the assessment as null and void, in line with the Kabul Chawla case.

Issue 2: Addition of interest expenses and valuation of Work-in-Progress (WIP):
The Revenue's appeal focused on the deletion of disallowance of interest expenses amounting to Rs. 2,69,48,770. The CIT(A) had deleted the disallowance, stating that the assessee failed to produce relevant receipts and agreements during assessment proceedings. The tribunal noted that the CIT(A) erred in admitting additional evidence without following Rule 46A, as per the decision in Manish Build Well Pvt. Ltd. The tribunal found that the CIT(A) did not consider the failure of the assessee to substantiate its claims regarding the interest expenses for specific projects adequately. Additionally, the tribunal highlighted discrepancies related to the license certificate issued to another entity. Ultimately, the tribunal dismissed the Revenue's appeal and allowed the assessee's appeal on the legal issue, rendering other grounds moot due to the quashing of the assessment proceedings.

In conclusion, the tribunal upheld the assessee's contention regarding the validity of assessment proceedings under section 153A, following the principles established in the Kabul Chawla case. The tribunal also addressed the Revenue's appeal concerning the disallowance of interest expenses, emphasizing the need for proper substantiation and adherence to procedural rules. The judgment resulted in the allowance of the assessee's appeal and the dismissal of the Revenue's appeal based on the legal issue raised.