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2014 (2) TMI 810 - AT - Income TaxSustainability of the additions for completed assessments - Assessments made u/s 153 A r.w section 143(3) of the Act Addition made u/s 68 and 14A of the Act - Held that - In the assessment u/s 153A, the AO made Addition u/s 68 on account of artificially inflated investment in house duly disclosed in the balance sheet of the assessee and disallowance u/s 14A - there is no incriminating material before the AO to support the above additions - The valuation report, which is garnered by the authorities constitutes mere estimates and the provisions of section 132 is not required to obtain such report from the DVO - for making additions AO has not used even the valuation report and the AO disallowed what is reported in the books - Similar is the case with the additions u/s 14A of the Act thus, the additions are made merely based on the entries in the accounted books and certainly not based on either the unaccounted books of accounts of the assessee or books not produced to the AO earlier or the incriminating material gathered by the investigation wing of the revenue thus, the assessments or additions are unsustainable in law. Relying upon Gurinder Singh Bava vs. DCIT 2014 (2) TMI 731 - ITAT MUMBAI In the absence of any seized material which are incriminating in nature to back the additions u/s 68 or 14A of the Act made in the assessment made u/s 153A of the Act for the AY under consideration - Regarding the DVO s report gathered during the search action, the report suffers from certain deficiencies quacost of construction of residential property and the land obtained thereto - This is merely a presumption rather conclusion based on any evidences - Such additions are unsustainable in law in the assessments made u/s 153A r.w.s 143(3) of the Act notice u/s 153A of the Act and (2) in disapproving the making of the impugned additions u/s 68 and 14A of the Act, which are not backed by the incriminating materials - In the absence of incriminating material, the role of the AO is only to reiterate the returned income filed in response to the notice u/s 153A of the Act - Decided partly in favour of Assessee.
Issues Involved:
1. Validity of the notice issued under section 153A of the Income Tax Act. 2. Addition on account of artificially inflated investment in house. 3. Disallowance under section 14A of the Income Tax Act. Detailed Analysis: 1. Validity of the Notice Issued Under Section 153A: The assessee argued that the notice under section 153A was invalid as no incriminating material was found during the search, which is a prerequisite for issuing such a notice. The CIT (A) dismissed this argument, stating that the assessment under section 143(1)(a) cannot be treated as a completed assessment and relied on the Supreme Court judgment in DCIT vs. Rajesh Javeri Stock Brokers. The CIT (A) further argued that the AO is statutorily obligated to issue notice for all six assessment years prior to the search date, regardless of the presence of incriminating material. The Tribunal, however, agreed with the assessee, citing multiple judicial precedents, including the Rajasthan High Court judgment in Jai Steel (India) Ltd vs. ACIT, which held that in the absence of incriminating material, the completed assessment cannot be disturbed. The Tribunal concluded that the notice under section 153A was invalid as the additions were not based on any incriminating material found during the search. 2. Addition on Account of Artificially Inflated Investment in House: The AO made an addition of Rs. 31,33,007/- on the grounds that the assessee failed to furnish evidence supporting the expenditure claimed for the construction of a residential house. The CIT (A) upheld this addition, relying on the valuation report obtained during the search. The Tribunal found that the valuation report was merely an opinion and not incriminating material. The Tribunal noted that the AO did not use this report for making the addition and that the addition was based on presumptions rather than evidence. The Tribunal concluded that such additions are unsustainable in law, especially in assessments made under section 153A read with section 143(3) of the Act. 3. Disallowance Under Section 14A: The AO disallowed Rs. 23,31,469/- under section 14A read with Rule 8D, which the CIT (A) directed to be recomputed. The Tribunal observed that the disallowance was made without any incriminating material and was based on the regular books of accounts. The Tribunal reiterated that in the absence of incriminating material, no addition could be made in a completed assessment under section 153A. The Tribunal cited various judicial precedents, including the Special Bench decision in All Cargo Global Logistics Ltd vs. DCIT, which held that additions in completed assessments under section 153A could only be made based on incriminating material. Conclusion: The Tribunal allowed the legal ground raised by the assessee, holding that the notice under section 153A was invalid as the additions were not based on any incriminating material. Consequently, the additions made under sections 68 and 14A were deleted. The other grounds on the merits of the additions were dismissed as academic. Decision: Both appeals of the assessee were partly allowed. The order was pronounced in the open court on January 10, 2014.
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