2018 (5) TMI 1818 - AT - Income Tax

Assessment u/s 153A - addition made in the absence of any incriminating material found during the course of search - Held that - In the present case, since no incriminating material was found, therefore, the addition made by the AO u/s 153A of the Act was not justified. See COMMISSIONER OF INCOME TAX (CENTRAL) -III VERSUS KABUL CHAWLA 2015 (9) TMI 80 - DELHI HIGH COURT as held since no incriminating material was unearthed during the search, no additions could have been made to the income already assessed. - Decided in favour of the Assessee

Summary

Issues Involved:
1. Condonation of Delay
2. Addition under Section 68 of the Income Tax Act
3. Disallowance of Pre-Operative Expenses
4. Validity of Assessment under Section 153A in the absence of incriminating material

Condonation of Delay:
The appeals filed by the assessee were delayed by 63 days. The assessee explained that the delay was due to the factory shutdown since January 2014, resulting in multiple litigations and the layoff of all employees, including the accounts/taxation staff. The Tribunal considered the explanation reasonable and condoned the delay, allowing the appeals to be admitted.

Addition under Section 68 of the Income Tax Act:
The main grievance of the assessee was the addition of ?51,00,000 under Section 68 without any incriminating material found during the search. The original return was filed declaring a loss, and the assessment was made under Section 153A/143(3) after a search. The CIT(A) sustained the addition based on blank signed Share Transfer Forms found during the search, which indicated that shares were transferred to the Directors and their family members at a lower price. The Tribunal, however, noted that the assessment was not based on any incriminating material found during the search and that the documents found were not sufficient to justify the addition. Therefore, the addition under Section 68 was deleted.

Disallowance of Pre-Operative Expenses:
The department appealed against the deletion of ?29,86,532 made by the AO on account of pre-operative expenses. The CIT(A) observed that the expenditure was not doubted by the AO and that even a trial run of the machine would amount to "put to use," justifying the expenses. The Tribunal upheld the CIT(A)'s decision, confirming that the disallowance was not justified.

Validity of Assessment under Section 153A in the absence of incriminating material:
The Tribunal emphasized that for assessments under Section 153A, any addition or disallowance must be based on incriminating material found during the search. In this case, the assessments for the years in question had attained finality before the search, and no incriminating material was found. The Tribunal cited various case laws, including CIT Vs Kabul Chawla and Pr. CIT Vs Meeta Gutgutia, which held that additions under Section 153A must be based on seized material. Since no such material was found, the additions and disallowances made by the AO were not justified and were deleted.

Conclusion:
The appeals of the assessee were allowed, and the department's appeals were dismissed. The Tribunal concluded that the assessments under Section 153A were not valid in the absence of incriminating material, and the additions made by the AO were not justified.