2015 (11) TMI 1439 - AT - Income Tax

Assessment under section 153C - Disallowance on account of administrative & other overheads - plea of the assessee was that for the year under consideration the return filed by the assessee having been deemed to be processed under section 143(1) of the Act, in the absence of any notice issued under section 148 of the Act it attained finality - Held that - The return of income having been filed in 2011, proceedings have reached finality by 2013 on which date the officer, to whom the matters were transferred, had not initiated proceedings and thus the assessment can be said to have attained finality. Even otherwise it is not in dispute that there was no incriminating material found during the course of search in respect of the assessee herein and in fact no addition was made by AO on the strength of the documents seized, in this assessment year. Under identical circumstances the ITAT SMC Bench - in the case of Empire Mall Ltd. (2015 (11) TMI 1358 - ITAT MUMBAI) wherein held that the proceedings initiated under section 153C are not valid and therefore the assessments made thereon were quashed. Consistent with the view taken by the ITAT in the aforecited cases I hold that the proceedings initiated under section 153C and the assessment made in the instant case is also not valid in as much as there is no incriminating material found during the course of search, pertaining to A.Y. 2011-12. Since the notice issued under section 153C is held to be invalid, the assessment made thereon has no legs to stand and therefore it is not necessary to deal with other disallowance. - Decided in favour of assessee

Summary

Issues:
1. Validity of proceedings under section 153C of the Act without incriminating material.
2. Disallowance of administrative and other overhead expenses as revenue expenditure.

Analysis:

Issue 1: Validity of proceedings under section 153C without incriminating material
The main contention revolved around the initiation of proceedings under section 153C without any incriminating material found during the search. The Assessee argued that the assessment had attained finality as no incriminating material was discovered, and the proceedings initiated under section 153C were not valid. The Assessee relied on previous judgments by the ITAT, such as in the case of Empire Mall Ltd. and Hagwood Commercial Developers Pvt. Ltd., where similar proceedings were deemed invalid due to the absence of incriminating material. The ITAT upheld the Assessee's argument, stating that without any incriminating material pertaining to the relevant assessment year, the proceedings under section 153C were not valid. Therefore, the assessment made based on these proceedings was quashed.

Issue 2: Disallowance of administrative and other overhead expenses
The Revenue challenged the deletion of disallowance of expenses amounting to Rs. 16,05,200 made by the AO. The Revenue contended that the expenses should have been capitalized under 'Capital work-in-progress' instead of being claimed as revenue expenditure since the construction of the Mall had not commenced during the assessment year. However, the CIT(A) allowed the expenses as revenue expenditure, granting relief to the Assessee. The ITAT supported the CIT(A)'s decision, upholding that the disallowance of Rs. 1,61,497 related to administrative and other overheads was allowable as revenue expenditure.

In conclusion, the ITAT ruled in favor of the Assessee, declaring the appeal filed by the Assessee as allowed. The appeal filed by the Revenue was dismissed on the grounds of academic importance, emphasizing the invalidity of the proceedings under section 153C without incriminating material and the allowance of administrative and other overhead expenses as revenue expenditure.