2016 (2) TMI 741 - AT - Income Tax

Revision u/s 263 - incorrect assessments under section 143(3) read with section 153A - Central subsidy given for installing the food processing units is to be tretaed as income of assessee as per CIT(A) - Held that - A.O. could not have considered any other material, other than the material found during the course of search, during the assessments completed under section 143(3) read with section 153A of the I.T. Act. The Hon ble Bombay High Court in the case of Continental Warehousing Corporation (2015 (5) TMI 656 - BOMBAY HIGH COURT ) has clearly held that the assessments under section 143(3) read with section 153A/153C have to be confined only to the material found during the course of search. Further, even on merits, we find that the Central subsidy given for installing the food processing units in the specified areas is not asset specific but is industry specific. Therefore, it cannot be treated as income of the assessee. Therefore, the assessment order is not erroneous in so far as it is prejudicial to the interests of the Revenue. Hence, on both the counts, we hold that the order of the Ld. CIT under section 263 is not sustainable. - Decided in favour of assessee

Summary

Issues:
1. Validity of proceedings under section 263 of the IT Act.
2. Consideration of Central subsidy in assessment under section 143(3) read with section 153A.
3. Nature of Central subsidy - capital subsidy or grant-in-aid.
4. Scope of assessment under section 143(3) read with section 153A in completed assessments.
5. Interpretation of relevant legal judgments in the context of the case.

Issue 1: Validity of proceedings under section 263 of the IT Act
The appellant challenged the validity of the proceedings under section 263, arguing that since no notices under sections 143(2) and 142(1) were issued within the specified time, the assessments for the relevant assessment years had concluded before the search operation. The appellant contended that no incriminating material was found during the search, limiting the scope of assessment under section 143(3) read with section 153A. Citing legal precedents, the appellant asserted that the direction to consider the Central subsidy was beyond the purview of the assessment under section 143(3) read with section 153A, thus rendering the order unsustainable.

Issue 2: Consideration of Central subsidy in assessment under section 143(3) read with section 153A
The Ld. CIT directed the Assessing Officer (A.O.) to re-do the assessment, focusing on the Central subsidy received by the appellant for the expansion of the edible oil refinery. The Ld. CIT observed that the subsidy should have been added to the total income of the year of receipt and that the A.O. failed to verify this aspect before completing the assessment. However, the Tribunal found that the A.O. had sufficient information about the subsidy during the original assessment proceedings. The Tribunal emphasized that assessments under section 143(3) read with section 153A must be based on material found during the search, precluding consideration of additional information not related to seized material.

Issue 3: Nature of Central subsidy - capital subsidy or grant-in-aid
The appellant argued that the Central subsidy was a grant-in-aid for establishing the edible oil refinery in backward areas, not specifically for machinery purchase, and thus should not be treated as income. The Tribunal concurred, noting that the subsidy was industry-specific, not asset-specific, and therefore should not be considered as income. This analysis supported the conclusion that the assessment order was not erroneous or prejudicial to the Revenue's interests.

Issue 4: Scope of assessment under section 143(3) read with section 153A in completed assessments
The Tribunal clarified that assessments under section 143(3) read with section 153A must be confined to material found during the search, as per legal precedents. Since no incriminating material was discovered during the search in this case, the A.O. could not consider additional information unrelated to seized material. Completed assessments, as in this case, restrict the A.O. from incorporating new details not arising from the search operation.

Issue 5: Interpretation of relevant legal judgments in the context of the case
Both parties cited legal judgments to support their arguments. The appellant relied on cases emphasizing the limitation of assessments under section 143(3) read with section 153A to seized material, while the Revenue cited judgments allowing consideration of additional material in such assessments. The Tribunal analyzed these precedents and concluded that the order under section 263 was not sustainable, aligning with the appellant's contentions and legal interpretations.

In conclusion, the Tribunal allowed the appellant's appeals for both assessment years, emphasizing the restricted scope of assessments under section 143(3) read with section 153A in completed assessments and the nature of the Central subsidy as grant-in-aid, not income. The judgment highlighted the importance of adhering to legal principles in tax assessments and the necessity of basing decisions on relevant, seized material during search operations.