2020 (2) TMI 1481 - AT - Income Tax

Validity of initiation of proceedings u/s.153A - Addition u/s 14A - HELD THAT - It is not in dispute that as on the date of assumption of jurisdiction by the Assessing Officer u/s. 153A, the assessment for the assessment year 2008-09 was a concluded one and therefore, it does not get abated. It is settled principle of law that in terms of decision of Hon ble jurisdictional High Court in the case of Kabul Chawla 2015 (9) TMI 80 - DELHI HIGH COURT , Chintels India Ltd vs. DCIT 2017 (7) TMI 746 - DELHI HIGH COURT , PCIT vs. Best Infrastructure (India) Ltd. 2017 (8) TMI 250 - DELHI HIGH COURT , PCIT Vs. Meeta Gutgutia, 2017 (5) TMI 1224 - DELHI HIGH COURT , Ld. PCIT vs. Ms Lata Jain, 2016 (5) TMI 1273 - DELHI HIGH COURT the assessments and reassessments pending on the date of the search shall abate and the total income for such assessment years will have to be computed by the Assessing Officers as a fresh exercise; and that although Section 153A of the Act does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search material or information available with the AO which can be related to the evidence found, it does not mean that the assessment can be arbitrary or made without any relevance or nexus with the seized material. Obviously, an assessment has to be made under this Section only on the basis of seized material. In the absence of any material to the contrary, it is not possible for us to find fault with the findings of the ld. CIT(A) while following the decision of Hon ble Jurisdictional High Court in the case of Kabul Chawla (supra) to reach a conclusion that the addition made u/s. 14A read with Rule 8D cannot be sustained in the absence of any incriminating material un-earthed during the search proceedings. We, accordingly find the grounds of appeal as devoid of merits and the same are liable to be dismissed and are accordingly dismissed.

Summary

Issues Involved:
1. Validity of initiation of proceedings u/s. 153A of the Income-tax Act, 1961
2. Deletion of addition made by the Assessing Officer u/s. 14A read with Rule 8D

Analysis:

Issue 1: Validity of initiation of proceedings u/s. 153A
The appeal challenged the order passed by the Commissioner of Income Tax (Appeals) for the assessment year 2008-09, initiated under section 153A of the Income-tax Act, 1961. The Revenue contended that the proceedings were validly initiated based on a search and seizure action carried out in another case. The assessee argued that no search was conducted on their premises, and the notice was issued based on documents found in a joint locker. The assessment under section 153A/143(3) was completed, making an addition under section 14A read with Rule 8D of the Rules.

Issue 2: Deletion of addition u/s. 14A read with Rule 8D
The assessee appealed the addition made by the Assessing Officer under section 14A read with Rule 8D. The Commissioner of Income Tax (Appeals) considered the material and concluded that no incriminating documents were found during the search pertaining to the addition. Citing relevant court decisions, the Commissioner directed the deletion of the disallowance. The Revenue challenged this deletion, while the assessee raised a cross objection regarding the initiation of proceedings under section 153A without a search on them.

The Tribunal analyzed the record and submissions, noting that no material seized during the search formed the basis for the addition under section 14A read with Rule 8D. Referring to legal precedents, the Tribunal emphasized that assessments pending at the time of search abate, requiring a fresh computation of total income. Assessments under section 153A must be based on seized material, and without such material, additions cannot be sustained. Consequently, the Tribunal found the appeal groundless, dismissing both the Revenue's appeal and the assessee's cross objections as infructuous.

In conclusion, the Tribunal dismissed the appeal of the Revenue and the cross objections of the assessee, upholding the deletion of the addition made under section 14A read with Rule 8D. The judgment was pronounced in open court on 13th February 2020.