2018 (1) TMI 1490 - AT - Income Tax

Assessment u/s 153A - whether while making assessment u/s.153A the Revenue is entitled to interfere with the assessment concluded either u/s 143(1) or u/s 143(3) and not pending at the time of search in the absence of any incriminating material unearthed as a result of search? - HELD THAT - Total absence of reference to any incriminating material which may have any bearing to impugned additions/disallowances. As a corollary it is manifest that additions/disallowances have been made without reference to any specific incriminating material/document found as a result of search and seizure action under s.132 of the Act and is based on re-appreciation of facts unconnected to search. Income-tax return for the relevant assessment years were filed prior to the search in the normal course suo motu incorporating the items of income/expenditure which are subject matter of considerations in the assessment framed u/s 153A. The returns for various assessment orders in question so filed in ordinary course were accepted under s.143(1) of the Act and/or assessed under s.143(3) and as such no assessment was eventually pending on the date of initiation of search which may get abated in consequence of search. Accordingly various additions/disallowances made by the AO are clearly beyond the scope of authority vested under s.153A of the Act owing to absence of any incriminating material or evidence. Thus in the absence of any incriminating material/evidence no addition can be sustained under s.153A is no longer res integra in view of the decision of the Hon ble Jurisdictional High Court in the case of Saumya Construction (P.) Ltd. 2016 (7) TMI 911 - GUJARAT HIGH COURT and Devangi alias Roopa 2017 (2) TMI 724 - GUJARAT HIGH COURT . Similar view was earlier taken by the Hon ble Delhi High Court in the case of Kabul Chawla 2015 (9) TMI 80 - DELHI HIGH COURT . Additions/disallowances made without any nexus to incriminating material found if any as a result of search operations are not sustainable in the eyes of law in section 153A of the proceedings. - Decided in favour of assessee.

Summary

Issues:
Challenge to jurisdiction under section 153A of the Income Tax Act.

Analysis:
The appeals were filed by the Assessee against the order of the Commissioner of Income Tax(Appeals) concerning Assessment Years 2004-05 to 2008-09. The Assessee challenged the jurisdiction of the Assessing Officer (AO) under section 153A of the Act regarding additions/disallowances made. The Assessee argued that the additions/disallowances lacked a rational connection with the material found during the search action. The Assessee contended that the AO assessed the rent income under a different head of income, which was not justified. The Assessee claimed that the returns for the relevant assessment years were filed before the search, and no incriminating material was found during the search related to the additions/disallowances made. The Assessee relied on various court decisions to support their argument that additions/disallowances made without incriminating material are not permissible under section 153A of the Act.

The Assessee's main contention was whether the Revenue could interfere with assessments concluded under section 143(1) or 143(3) in the absence of incriminating material found during the search. The Tribunal noted that there was no reference to any incriminating material in the assessments related to the additions/disallowances. It was observed that the additions/disallowances were made without specific incriminating material found during the search, which indicated a lack of connection to the search. The Tribunal found that the assessments for the relevant years were already concluded before the search, and as such, the additions/disallowances made by the AO were beyond the scope of section 153A due to the absence of incriminating material.

The Tribunal referred to judicial precedents, including decisions by the High Courts, to support the view that additions/disallowances made without a nexus to incriminating material found during search operations are not sustainable under section 153A. Consequently, the Tribunal held that the additions/disallowances made by the AO were not valid and needed to be quashed. Therefore, the Tribunal allowed all the appeals filed by the Assessee, concluding that the additions/disallowances made were not in accordance with the law under section 153A of the Income Tax Act.