2017 (10) TMI 1541 - AT - Income Tax

Validity of the proceedings u/s 153A - Review / re-examine any issue in the proceeding u/s 153A - HELD THAT - There is no finding to the effect that any incriminating material was found in search. As per the assessment order also, there is no reference to any incriminating material found in search. CIT(A) should record a categorical finding as to whether any incriminating material was found in course of search or not. If it is found that no incriminating material was found in course of search then it should be held that the proceedings initiated by AO u/s. 153A are not valid by following the later judgement of of CIT Vs. Lancy Construction 2016 (2) TMI 797 - KARNATAKA HIGH COURT and if it is found that any incriminating material was found in course of search, then these proceedings should be held valid and issue on merit should be decided afresh.

Summary

Issues Involved:

1. Validity of proceedings under Section 153A.
2. Amortization of business expenditure and depreciation.
3. Disallowance of claim of operating and administrative expenses.
4. Deduction of operating and administrative expenses in subsequent assessment years.

Issue-wise Detailed Analysis:

1. Validity of Proceedings under Section 153A:

The assessee contended that the CIT(A) erred in upholding the action of the Assessing Officer (AO) in determining total income at ?2,66,740/- against a returned loss of ?2,89,66,908/- under normal provisions upon completion of assessment under Section 143(3) read with Section 153A of the Income Tax Act, 1961. The assessee argued that, according to the second proviso to Section 153A, completed assessments cannot be disturbed unless there is undisclosed income found during the search or incriminating documents pointing towards such undisclosed income. The CIT(A) failed to appreciate that no incriminating material was found requiring re-examination or review of items already examined in the original assessment proceedings. The tribunal noted that the CIT(A) relied on the judgment of the Karnataka High Court in the case of Canara Housing Development Co. vs. DCIT, which held that the AO is empowered to assess or reassess the total income of the assessee under Section 153A, even if no incriminating material is found. However, the tribunal also considered the subsequent judgment in CIT vs. Lancy Construction, which emphasized that in the absence of any incriminating material found in the search, the assessment proceedings under Section 153A are invalid. The tribunal directed the CIT(A) to record a categorical finding on whether any incriminating material was found during the search. If no such material was found, the proceedings under Section 153A should be held invalid.

2. Amortization of Business Expenditure and Depreciation:

The assessee challenged the CIT(A)'s decision to uphold the AO's action in amortizing business expenditure and depreciation totaling ?2,92,58,647/- over ten installments, on the grounds that the business had not yet commenced as the IPL season-I began on April 18, 2008. The assessee argued that the expenses were incurred after the business was set up and should be allowed in full. The tribunal, however, did not address this issue directly due to its decision to remand the case back to the CIT(A) for a finding on the presence of incriminating material.

3. Disallowance of Claim of Operating and Administrative Expenses:

The assessee argued that the CIT(A) erred in upholding the AO's action in determining the income at ?2,66,800/- against the returned business loss of ?2,89,66,908/-, which was accepted and allowed to be carried forward and set off against the income of the assessment year 2010-11. The assessee contended that the business loss for the assessment year under consideration had attained finality and could not be disturbed in proceedings under Section 153A. The tribunal did not address this issue directly due to its decision to remand the case back to the CIT(A) for a finding on the presence of incriminating material.

4. Deduction of Operating and Administrative Expenses in Subsequent Assessment Years:

The assessee argued that the CIT(A) erred in upholding the AO's action in not allowing the deduction of operating and administrative expenses of ?2,91,06,793/- and depreciation of ?1,51,854/- in the subsequent assessment year (2009-10), treating them as enduring in nature. The assessee contended that these expenses were revenue in nature and incurred after the business was set up to participate in IPL Season-1. The tribunal did not address this issue directly due to its decision to remand the case back to the CIT(A) for a finding on the presence of incriminating material.

Conclusion:

The tribunal allowed the appeal for statistical purposes, directing the CIT(A) to record a categorical finding on whether any incriminating material was found during the search. If no such material was found, the proceedings under Section 153A should be held invalid, and the issues on merit should be decided afresh. The tribunal did not address the other grounds raised on merit at this stage.