2013 (10) TMI 520 - AT - Income Tax

Assessment u/s 153A - Addition made, when no incriminating evidence found in the course of search - Held that - No incriminating document found relating to the land development expenses debited in the books of accounts. No material was on the record on that basis which income of assessee could be further assessed by Assessing Officer. Therefore, the assessing officer has no jurisdiction to make or to resort to roving and fishing inquiries to find out whether any income has escaped assessment during these reassessment proceedings. Particularly, when there is no incriminating material found and seized during the course of search u/s 132(1) of the Act and nothing is available in record to reassess the income of assessee Decided against the Revenue. The expiry of time for issuing notice u/s 143(2) of the Act takes away the jurisdiction of the AO for issuing notice u/s 143(2). It is jurisdictional power available with the AO to be exercised in a given period. Once, it is exercised then it can be completed only by making order u/s 143(3) of the Act within the time available u/s 153(1) of the Act. Once search takes place u/s 132(1) of the Act and completion of proceeding is pending on that date then such proceedings abate. Thus, the scope of assessment u/s 153A depends upon whether any assessment or reassessment proceedings were pending or completed on the date of the search. Whenever the abated proceedings are merged with the proceedings u/s 153A then scope of assessment is vide and it will cover all issues arising from the original return and issue arising on the basis of incriminating documents, and assets found and seized during the search. Wherever the proceedings are completed prior to the search then nothing merges with proceding u/s 153A of the Act and nothing abates. In such a situation, the AO has to respect the completeness of the proceedings. Admittedly, in the case of assessee, no incriminating documents were found and seized. The provisions of section 153A give power to assessing officer to assess and reassess the income. The assessing officer is empowered to make addition on account of undisclosed income or income escaped assessment. In the case under consideration, there is no incriminating material found during the course of search relating to the assessment year under consideration. The time period for issuing notice u/s 143(2) was already expired prior to the date of search. Therefore, the proceedings do not get abated by virtue of proviso to Section 153A.

Summary

Issues Involved:

1. Quashing of assessment made under Section 153A.
2. Interpretation of Section 153A of the IT Act.
3. Reliance on second proviso to Section 153A(1).
4. Non-following of Circular No. 7 of 2003 by the CIT(A).
5. Precondition for documents under Section 153C/153A.
6. Validity of the CIT(A)'s order.

Issue-wise Detailed Analysis:

1. Quashing of Assessment Made Under Section 153A:
The CIT(A) quashed the assessment made under Section 153A by holding that no document was seized during the search pertaining to the Assessment Year in question. The CIT(A) reasoned that during the search, no evidence was found indicating undisclosed income by the appellant. Additionally, it was noted that the original return of income was filed on 02.12.2003 and processed under Section 143(1)(a), with no assessment pending on the day of the search. Therefore, the completed assessment should not abate.

2. Interpretation of Section 153A of the IT Act:
The CIT(A) interpreted Section 153A to mean that the assessment or reassessment should be based on incriminating material found during the search. The CIT(A) relied on several judicial precedents, including ITAT Jodhpur Bench in Suncity Alloys (P) Ltd. v. ACIT, ITAT Ahmedabad Bench in Meghmani Organics Ltd. v. DCIT, and others, which supported the view that no addition can be made if no incriminating material is found during the search.

3. Reliance on Second Proviso to Section 153A(1):
The CIT(A) placed reliance on the second proviso to Section 153A(1), which states that if no assessment is pending on the date of the search, the completed assessment shall not abate. This interpretation was supported by various case laws cited by the CIT(A), which emphasized that the scope of assessment under Section 153A is limited to the incriminating material found during the search.

4. Non-following of Circular No. 7 of 2003 by the CIT(A):
The revenue argued that the CIT(A) erred in not following Circular No. 7 of 2003 issued by the CBDT. However, the CIT(A) and judicial precedents cited in the judgment indicated that the circular does not override the statutory provisions and judicial interpretations that restrict the scope of assessment under Section 153A to incriminating material found during the search.

5. Precondition for Documents Under Section 153C/153A:
The revenue contended that there is no precondition that documents pertaining to each assessment year must be found for proceedings under Section 153C/153A. However, the CIT(A) and supporting case laws clarified that additions under these sections must be based on incriminating material found during the search. In the absence of such material, the assessments or reassessments cannot be justified.

6. Validity of the CIT(A)'s Order:
The CIT(A)'s order was challenged as being perverse and not tenable in law and on facts. However, the detailed analysis of judicial precedents and the facts of the case supported the CIT(A)'s decision to delete the addition made by the AO. The CIT(A) concluded that no incriminating material was found during the search to justify the addition of Rs. 90,19,000/- out of the land development expenses.

Conclusion:
The ITAT upheld the CIT(A)'s decision to quash the assessment made under Section 153A, emphasizing that no incriminating material was found during the search. The Tribunal reiterated that the scope of assessment under Section 153A is limited to the incriminating material found during the search, and in the absence of such material, no addition can be made. The revenue's appeal was dismissed, and the CIT(A)'s order was upheld.