2017 (3) TMI 1669 - AT - Income Tax

Revision u/s 263 - incriminating material for the purpose of making addition in the assessment made pursuant to notice u/s 153A - Held that - During the course of assessment proceedings, the appellant has filed detailed submissions/information corroborating the statements made u/s 132(4) of the Act. Now it is settled proposition of law that in case of assessment made pursuant to notice issued u/s 153A of the Act, addition should be confined or based on incriminating material alone. The AO is precluded to travel beyond the incriminating material for the purpose of making addition in the assessment made pursuant to notice u/s 153A of the Act. CIT was not justified in exercising power of revision when there was adequate inquiry by the AO and the view taken by the AO is one of the possible views. In this connection, we refer to the decision of the Hon ble Bombay High Court in the case of CIT vs. Nirav Modi 2016 (6) TMI 1004 - BOMBAY HIGH COURT wherein it has been held that the CIT was not justified in exercising power of revision where the AO, after due enquiry took one of the possible views. - Decided in favour of assessee.

Issues Involved:
1. Justification of the Commissioner of Income-tax (CIT) exercising power of revision under Section 263 of the Income-tax Act, 1961.
2. Examination and consideration of issues by the Assessing Officer (AO) during the assessment proceedings.
3. Validity of additions made by the AO based on statements and evidence provided by the assessee.
4. Principle of merger and its application in the context of revision proceedings.
5. Requirement of incriminating material for additions in assessments made pursuant to notice under Section 153A.

Issue-wise Detailed Analysis:

1. Justification of the CIT Exercising Power of Revision under Section 263:
The CIT issued a show cause notice proposing to set aside the assessment order as the AO allegedly failed to examine certain issues. The CIT held that the assessment order was erroneous and prejudicial to the interests of revenue, directing the AO to make enhancements and recompute the assessment. The assessee contended that the issues were duly examined by the AO, and the CIT was not justified in exercising the power of revision. The Tribunal held that the CIT was not justified in exercising the power of revision as the AO had made a thorough inquiry and took one of the possible views. The Tribunal referenced the decision of the Hon’ble Bombay High Court in CIT vs. Nirav Modi, emphasizing that the CIT cannot exercise power of revision where the AO has taken a possible view after due inquiry.

2. Examination and Consideration of Issues by the AO:
The AO made additions based on the statement given by the assessee during the search and seizure operation under Section 132(4). The AO also considered detailed submissions and evidence provided by the assessee during the assessment proceedings. The issues of profit on sale of properties, development expenditure, and commission expenditure were thoroughly examined by the AO. The Tribunal noted that the AO had directed the assessee to file details and substantiate the expenditure, and the assessee complied by providing evidence and making suo motu disallowances. The AO accepted these disallowances after due consideration.

3. Validity of Additions Made by the AO:
The AO made additions of ?1,25,66,700 on account of profit on sale of properties, ?50 lakhs on account of disallowance of development expenditure, and other amounts based on the assessee's statements and evidence. The Tribunal found that the AO had duly considered the submissions and statements made by the assessee, and the additions were based on a thorough examination of the issues. The Tribunal held that the CIT's attempt to impose his views on the AO without finding any error in the AO's approach was unjustified.

4. Principle of Merger:
The assessee argued that the issues sought to be revised by the CIT were already subject to proceedings before the CIT(A), and thus, the revision proceedings initiated by the CIT got merged with the CIT(A) proceedings. The Tribunal agreed with the assessee, referencing the principle of merger as held by the Hon'ble Supreme Court in Kunhayammed & Ors. Vs. State of Kerala & Anr., stating that the revision proceedings were not valid in law.

5. Requirement of Incriminating Material for Additions in Assessments under Section 153A:
The Tribunal emphasized that in assessments made pursuant to notice under Section 153A, additions should be based on incriminating material alone. The AO is precluded from making additions beyond the incriminating material found during the search. The Tribunal referenced the judgment of the Hon'ble jurisdictional High Court in CIT vs. IBC Knowledge Park P. Ltd., which stated that the assessment under Section 153A should be based on evidence found during the search. The Tribunal concluded that the CIT had not brought any material to show that incriminating material was found supporting his views, and thus, the revision was not justified.

Conclusion:
The Tribunal allowed the appeals filed by the assessee, holding that the CIT was not justified in exercising the power of revision under Section 263. The AO had made a thorough inquiry and taken a possible view based on the evidence provided by the assessee, and no incriminating material was found to support the CIT's views. The principle of merger also invalidated the revision proceedings initiated by the CIT.

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