2016 (9) TMI 1561 - AT - Income Tax

Assessment u/s 153A - new claim in the return of income filed u/s 153A - HELD THAT - In the present case before us though the second proviso to sub-section (1) of section 153A would not apply in the first three years of this case, yet, as far as the second three year period is concerned (which are pending before us), the assessments were pending. The proceedings in relation thereto abate. Now the entire assessment in relation to the second phase of three years can be made. The pending assessment in that case may be undertaken u/s 153A of the Act. The abatement of pending assessment is for the purpose of avoiding two assessments for the same year i.e. one being regular assessment and the other being search assessment u/s 153A of the Act. In other words, these two assessments merge into one assessment. It means that completed assessments stand on different footing from the pending assessments. Hence, in so far as pending assessments are concerned, the jurisdiction to make original assessment and assessment u/s 153A of the Act merge into one and in that case only one assessment for the remaining set of years, where assessment is pending, is to be made separately on the basis of search materials and the regular material existing or brought on record before the AO/Revenue. Assessee can make any new claim in the return of income filed u/s 153A of the Act or even during the course of assessment proceedings undertaken u/s 153A of the Act. In our view, and in view of the second proviso to Section 153A (1) of the Act, once assessment get abated it is opened both way i.e. for the Revenue to make any additions apart from seized material even regular items declared in the return can be subject matter if there is doubt about the genuineness of those items and similarly the assessee also can lodge new claim, deduction or exemption or relief which remained to be claimed in regular return of income, because assessment was never made in the case of the assessee in such situation. Hence, we allow this issue of assessee‟s appeal. Disallowance of capital receipt on account of gain on prepayment of VAT / Sales tax - remission or cessation of trading liability u/s. 41(1) - HELD THAT - As decided in CIT Vs Suzler India Ltd 2014 (12) TMI 267 - BOMBAY HIGH COURT has decided the issue in favour of the assessee by observing that where the assessee has made pre-mature payment of deferred sales tax on NPV basis of certain amount against the total liability and credited balance amount to its capital reserve account, the credited amount was capital receipt and it cannot be held to be a cessation or remission of a trading liability u/s 41(1) of the Act. Since, none of the authorities below have adjudicated this issue and facts are not available on records, we restore this issue back to the file of the AO - Appeals of the assessee are partly allowed for statistical purposes

Summary

Issues Involved:
1. Whether the assessment under Section 153A of the Income Tax Act, 1961, is only for the benefit of the Revenue.
2. Whether the assessee is entitled to make fresh legal claims in a return filed under Section 153A of the Income Tax Act, 1961.
3. Whether the gain on pre-payment of deferred VAT/sales tax on Net Present Value (NPV) basis should be treated as capital receipt or revenue receipt.

Issue-wise Detailed Analysis:

1. Assessment under Section 153A for the Benefit of Revenue:

The first issue is whether the assessment under Section 153A of the Act is only for the benefit of the Revenue. The CIT (A) held that the assessment under Section 153A is for the benefit of the Revenue, stating that the proceedings under Section 153A are a code in itself enabling the AO to make additions based on incriminating materials unearthed during the search. The CIT (A) emphasized that Section 153A does not allow the assessee to make fresh claims that were not made in the original return filed under Section 139(1). The Tribunal, however, disagreed with this view, stating that once the assessment gets abated, it is open both ways—allowing the Revenue to make additions and the assessee to make new claims. The Tribunal relied on the Bombay High Court's decision in CIT Vs Continental Warehousing Corporation (Nhava Sheva) Ltd., which clarified that the assessment or reassessment pending on the date of initiation of the search shall abate, and the AO has to assess or reassess the total income for six assessment years.

2. Entitlement to Make Fresh Legal Claims in Return Filed under Section 153A:

The second issue is whether the assessee is entitled to make fresh legal claims in a return filed under Section 153A. The Tribunal held that the assessee is entitled to make fresh claims in the return filed under Section 153A. The Tribunal noted that the return filed under Section 153A is deemed to be a return filed under Section 139(1) and all the provisions of the Act apply accordingly. The Tribunal also referred to the decision of the Bombay High Court in CIT Vs M/s. Pruthvi Brokers & Shareholders Pvt. Ltd., which held that even if a claim is not made before the AO, it can be made before the appellate authorities. The Tribunal concluded that once the assessment gets abated, the original return loses its originality, and the return filed in response to notice under Section 153A gets the place of the original return, allowing the assessee to make any new claim.

3. Treatment of Gain on Pre-payment of Deferred VAT/Sales Tax on NPV Basis:

The third issue is whether the gain on pre-payment of deferred VAT/sales tax on NPV basis should be treated as a capital receipt or revenue receipt. The assessee claimed the gain as a capital receipt, while the AO treated it as a revenue receipt. The Tribunal restored this issue back to the file of the AO to decide in light of the Bombay High Court's decision in CIT Vs Suzler India Ltd., which held that the credited amount was a capital receipt and not a cessation or remission of a trading liability under Section 41(1) of the Act.

Conclusion:

The Tribunal allowed the assessee to make fresh claims in the return filed under Section 153A and restored the issue of the treatment of gain on pre-payment of deferred VAT/sales tax to the AO for reconsideration in light of the relevant judicial precedents. The appeals of the assessee were partly allowed for statistical purposes.