2018 (1) TMI 1487 - AT - Income Tax

Assessment u/s 153A - disallowances u/s 40(a)(ia) and 36(1)(va) - disallowance made by the AO without referring to any incriminating material found and seized during the course of search and seizure action - HELD THAT - The scope and jurisdiction of the AO to reassess the total income of the assessee u/s 153A is limited only to the extent of the income disclosed by the incriminating material found and seized during the search and seizure action. AO has reassessed the income of the assessee by making the disallowance u/s 40(a)(ia) as well as u/s 36(1)(va) of the Act without making any reference to any incriminating material found. Therefore, the disallowance/addition made by the AO for these 3 assessment years completed u/s 153A is undisputedly not based on any incriminating material found or seized during the course of search and seizure action u/s 132 of the Act. Once, the Assessing Officer has completed the reassessment u/s 153A without any reference to the incriminating material found then, no addition cannot be made to the returned income of the assessee. See KABUL CHAWLA 2015 (9) TMI 80 - DELHI HIGH COURT - Decided in favour of assessee.

Issues Involved:
1. Validity of assessment under Section 143(3) read with Section 153A of the Income Tax Act, 1961.
2. Legitimacy of additions made by the Assessing Officer (AO) without referring to any incriminating material found during the search.

Issue-wise Detailed Analysis:

1. Validity of assessment under Section 143(3) read with Section 153A of the Income Tax Act, 1961:

The assessee challenged the assessment completed under Section 143(3) read with Section 153A of the Income Tax Act, 1961, arguing that no incriminating paper was found during the search pertaining to the years under appeal. The assessee contended that the additions made by the AO were without any reference to material found during the search, thus rendering the consequent order invalid. The assessee's returns for the years 2009-10, 2010-11, and 2011-12 were filed under Section 139(1) and the last date for issuing notice under Section 143(2) had expired before the date of the search on 17.07.2013. The Tribunal noted that as per Section 153A, the AO has to assess or reassess the total income for six years preceding the assessment year in which the search was conducted. However, for completed assessments, the AO can only reassess the total income based on incriminating material found during the search.

2. Legitimacy of additions made by the Assessing Officer (AO) without referring to any incriminating material found during the search:

The Tribunal observed that the AO made disallowances under Sections 40(a)(ia) and 36(1)(va) without referring to any incriminating material found during the search. The assessee relied on various judicial precedents, including the Hon'ble Delhi High Court's decision in CIT v. Kabul Chawla and Jai Steel India v. ACIT, which held that in the absence of incriminating material, completed assessments could only be reiterated and not arbitrarily altered. The Tribunal emphasized that the scope and jurisdiction of the AO to reassess the total income under Section 153A is limited to the extent of the income disclosed by the incriminating material found during the search. Since the AO completed the reassessment without any reference to incriminating material, the additions made were deemed unsustainable and were deleted.

Conclusion:

The Tribunal concluded that the reassessment completed under Section 153A without any reference to incriminating material was not sustainable. Consequently, the additions made by the AO under Sections 40(a)(ia) and 36(1)(va) were deleted. The appeals of the assessee were allowed, and the order was pronounced in the open court on 24/01/2018.

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