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2018 (9) TMI 1774 - AT - Income TaxAssessment u/s 153A - disallowance of expenditure incurred for increase in the authorized share capital of the company by holding the same as capital expenditure - Held that - AO cannot resort to the provisions of section 153A to fill up the lacuna left in the original assessment or not doing the original assessment except reassessment of the total income and addition, if any, based on incriminating material found during the course of search proceedings. In the case in hand, undisputedly no incriminating material was found to reveal any income not disclosed by the assessee in the return of income filed under section 139(1) - Rather the addition is made by the AO on account of disallowance of expenditure treating the same as capital in nature. Therefore, the issue of disallowance of expenditure is a debatable one and the disallowance is based on difference of opinion between the assessee and the AO. Hence when the original assessment was not pending as on the date of search then the AO cannot use the proceedings under section 153A to make an addition purely on the basis of difference of opinion. We set aside the impugned orders of the authorities below qua this issue and delete the addition made by the AO - addition made by the AO in the assessment framed under section 153A is deleted for want of incriminating material - Decided in favour of assessee.
Issues Involved:
1. Disallowance of expenditure for increase in authorized share capital. 2. Validity of assessment framed under section 153A without abatement. Issue-wise Detailed Analysis: 1. Disallowance of Expenditure for Increase in Authorized Share Capital: The assessee challenged the disallowance of ?3,16,194/- incurred for increasing the authorized share capital, arguing it should be considered as revenue expenditure since the capital was increased to meet working capital requirements. The CIT (A) confirmed the disallowance, treating it as capital expenditure. The assessee contended that this disallowance was made without any incriminating material found during the search and seizure, thus making the addition unsustainable in law. The assessee relied on several judicial precedents, including the decisions of the Hon’ble Jurisdictional High Court in Jai Steel (India) vs. ACIT and the Hon’ble Gujarat High Court in Saumya Construction Pvt. Ltd., which support the contention that additions under section 153A must be based on incriminating material found during the search. 2. Validity of Assessment Framed Under Section 153A Without Abatement: The assessee argued that the assessment under section 153A was a reassessment since the original assessment was not pending on the date of the search (10.10.2014). The time limit for issuing a notice under section 143(2) had expired on 30th September 2014. Therefore, any addition in the reassessment under section 153A should be based on incriminating material found during the search. The revenue, however, contended that section 153A allows for reassessment of total income irrespective of whether any incriminating material was found, citing pending SLPs against similar decisions. The tribunal considered the rival submissions and relevant judicial precedents. It was noted that the Hon’ble Jurisdictional High Court in Jai Steel (India) vs. ACIT held that in the absence of any incriminating material, the completed assessment can only be reiterated, and no new addition can be made. The tribunal emphasized that the CIT (A), being a quasi-judicial authority, is bound by the decisions of the High Courts unless overturned by the Supreme Court. The tribunal found that the AO made the disallowance based on a difference of opinion rather than any incriminating material found during the search, making the addition unsustainable. Conclusion: The tribunal set aside the orders of the authorities below and deleted the addition made by the AO, holding that the reassessment under section 153A without any incriminating material found during the search was not justified. Consequently, the appeal of the assessee was allowed. Order Pronounced: The order was pronounced in the open court on 07/09/2018.
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