2017 (11) TMI 1769 - AT - Income Tax

Assessment u/s 153A - whether any incriminating material was found in the course of search or not? - Held that - Neither in the assessment order nor in the order of CIT (A) there is any discussion on this aspect of the matter. The relevant panchanama is also not made available before us by any side in the paper book. Under these facts we feel it proper to restore the entire matter back to the file of CIT (A) for fresh decision in the light of this case of CIT Vs. Lancy Constructions 2016 (2) TMI 797 - KARNATAKA HIGH COURT after examining this factual aspect of the matter as to whether any incriminating material was found during the course of search or not. If required the CIT (A) may obtain remand report form AO on this aspect i.e. finding of incriminating material in the course of search and thereafter he should pass necessary order as per law in both years after providing adequate opportunity of being heard to both sides. Thus hold that after deciding technical aspect CIT (A) should decide the entire aspect on merit in both years afresh.

Issues Involved:
1. Validity of Assessment under Section 153A.
2. Disallowance under Section 14A.
3. Computation of Book Profit under Section 115JB.
4. Deduction under Section 80IA.
5. Adjustment towards interest-free financial assistance to Associated Enterprise.
6. Classification of Margin Money Deposits and Foreign Exchange Gain.

Detailed Analysis:

1. Validity of Assessment under Section 153A:
The primary issue raised by the assessee was the validity of the assessment under Section 153A. The assessee contended that no incriminating documents or undisclosed income were found during the search and seizure operation, and hence, the completed assessment should not be disturbed. The Appellate Tribunal referred to the judgment of the Hon'ble Karnataka High Court in CIT Vs. Lancy Constructions, which held that in the absence of incriminating material, the revenue cannot reopen a concluded assessment. The Tribunal decided to remand the matter back to the CIT(A) to examine whether any incriminating material was found during the search, as this was not discussed in the assessment order or the CIT(A)'s order.

2. Disallowance under Section 14A:
The assessee challenged the disallowance under Section 14A, arguing that the CIT(A) erred in holding that disallowance should be made at 1.50% of the dividend income. The Tribunal noted that the CIT(A) had upheld the disallowance based on indirect expenses incurred for earning exempt income. The Tribunal decided that the issue on merits should be adjudicated only after the technical aspect regarding the validity of the assessment under Section 153A is resolved.

3. Computation of Book Profit under Section 115JB:
The assessee argued that for computing book profit under Section 115JB, the actual amount incurred for earning exempt income should be considered, not 1.50% of the dividend income. The Tribunal deferred the adjudication of this issue until the technical aspect of the validity of the assessment under Section 153A is decided.

4. Deduction under Section 80IA:
The assessee contended that the interest income on deposits with banks, placed as per the Trust and Retention Account Agreement, should be treated as derived from the business of power generation and eligible for deduction under Section 80IA. The Tribunal decided that this issue should also be adjudicated after the technical aspect of the validity of the assessment under Section 153A is resolved.

5. Adjustment towards Interest-Free Financial Assistance to Associated Enterprise:
For the Assessment Year 2008-09, the assessee challenged the adjustment made towards interest-free financial assistance provided to GMR Energy Mauritius Limited, an associated enterprise. The CIT(A) had upheld the adjustment at LIBOR plus an additional charge. The Tribunal deferred the adjudication of this issue until the technical aspect of the validity of the assessment under Section 153A is resolved.

6. Classification of Margin Money Deposits and Foreign Exchange Gain:
The revenue raised the issue of whether the CIT(A) was correct in not treating the Margin Money Deposits with banks for bank guarantees and income from Foreign Exchange Gain as income from other sources. The Tribunal deferred the adjudication of this issue until the technical aspect of the validity of the assessment under Section 153A is resolved.

Conclusion:
The Tribunal restored the entire matter back to the CIT(A) for a fresh decision on the validity of the assessment under Section 153A in light of the judgment in CIT Vs. Lancy Constructions. The CIT(A) was directed to examine whether any incriminating material was found during the search and then decide the entire matter on merits. All three appeals, including two by the assessee and one by the revenue, were allowed for statistical purposes.

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