2015 (12) TMI 1749 - AT - Income Tax

Scope of assessment u/s. 153A - undisclosed income and undisclosed assets detected during search could be brought to tax - Held that - Undisputedly, during the course of the search and seizure operation, not a single piece of paper was found relating to the transactions. Moreover, the assessee filed original return on 31.10.2004 which was revised on 29.3.2006 pursuant to survey operations and in the revised return of income, the income offered during the survey operations were offered for taxation and the assessment has been made as such vide order dated 29.12.2006. Thus, it can be seen that there is no material found at the time of search which can be said to be an incriminating material to justify the impugned additions and it is also not the case of the Revenue that the additions have been made on the basis of the materials found at the time of search. No reason/justification in making the impugned additions. Order of the Ld. CIT(A) is accordingly set aside. The AO is directed to delete the impugned additions. Notice issued u/s. 143(2) - Held that - We have given a thoughtful consideration to the chronological event relating to the filing of original return of income, revised return of income and notice issued u/s. 143(2) of the Act. Admittedly, the revised return of income was filed on 30.6.2006. As per the provisions of Sec. 143(2), the notice should have been issued on or before 1.7.2007. The notice was issued on 22.8.2007. Thus, the said notice u/s. 143(2) is bad in law which means that the revised return of income was accepted as such u/s. 143(1) which also means that a completed assessment can be opened only when some incriminating material was found during the course of the search. Levy of penalty u/s. 271(1)(c) - Held that - Since we have held the assessment made u/s. 143(3) r.w. Sec. 153A of the Act is bad in law of even date and since we have directed the AO to delete the impugned additions, drawing support from the maxim Sublato fundaments credit Opus meaning in the case the foundation is removed, super structure falls. Since the foundation i.e. assessment order has been removed, the super structure i.e. penalty falls. Appeal filed by the assessee is allowed.

Summary

Issues involved:
- Assessment years 2004-05 & 2005-06
- Levy of penalty u/s. 271(1)(c) for A.Y. 2005-06

Analysis:

Issue 1: Assessment years 2004-05 & 2005-06
The appeals by the assessee were against three separate orders of the Ld. CIT(A)-41, Mumbai pertaining to these assessment years. The assessment was completed u/s. 143(3) of the Act, and subsequently, a search and seizure operation u/s. 132 of the Act was conducted. The assessee contended that the additions made were without any incriminating material found during the search operations, rendering the assessment under section 153A of the Act as bad in law. The Hon'ble High Court's decision emphasized that assessments under section 153A cannot disturb finalized assessment orders without new material. As no incriminating material was found during the search, the impugned additions were unjustified, leading to the order of the Ld. CIT(A) being set aside, directing the AO to delete the additions.

Issue 2: Levy of penalty u/s. 271(1)(c) for A.Y. 2005-06
The appeal against the levy of penalty u/s. 271(1)(c) was allowed based on the previous decision that the assessment made u/s. 143(3) r.w. Sec. 153A of the Act was deemed bad in law. The principle of "Sublato fundamento cadit opus" was applied, indicating that if the foundation of the assessment order is removed, the penalty imposed subsequently falls. Therefore, since the assessment order was set aside, the penalty was also dismissed. All appeals filed by the assessee were allowed, and the penalty was revoked accordingly.

In conclusion, the judgments in both issues favored the assessee, emphasizing the importance of incriminating material in assessments under section 153A and linking the dismissal of the penalty to the invalidity of the assessment order.