2019 (4) TMI 1971 - AT - Income Tax

Assessment u/s 153A - whether any assessment order u/s 143 (3) was passed or not before the date of search for deciding this aspect of the matter that the assessment is pending or not on the date of search? - HELD THAT - In the present case, this is not a case where notice u/s 143 (2) was issued and time is available for passing of order u/s 143 (3). In fact, in the present case, no notice u/s 143 (2) was issued before the date of search for any of these four years. Now we examine as to whether, time was available to the AO to issue notice u/s 143 (2) on the date of search. As per proviso to section 143 (2), no notice shall be issued after expiry of six months from the end of the financial year in which the return was filed. Last return was filed for A. Y. 2011- 12 on 25.09.2011 and therefore, notice u/s 143 (2) for this year could have been issued up to 30.09.2012 and the search has taken place on 11.10.2012. So time was not available to the AO on the date of search to issue notice u/s 143 (2) for any of these four years. Hence, no assessment was pending on 11.10.2012 and hence, no assessment gets abated. As per the judgment of Hon ble Delhi High Court rendered in the case of Meeta Gutgutia 2017 (5) TMI 1224 - DELHI HIGH COURT , if no incriminating material is found in search and assessment is not abated, such a completed assessment cannot be reopened u/s 153A in the absence of incriminating material having been found in search. SLP filed by the revenue against this judgment of Hon ble Delhi High Court is dismissed by Hon ble apex court. But in order to apply the ratio of this judgment, this factual aspect has to be examined as to whether any incriminating material for any of these four assessment years was found or not in search. CIT (A) has not given any finding on this factual aspect because he proceeded on this basis that this is not material as per the judgment of Hon ble Karnataka High Court rendered in the case of Canara Housing Development Co. 2014 (8) TMI 642 - KARNATAKA HIGH COURT but we have seen that this judgment is not relevant to decide this aspect as to whether section 153A can be invoked for a year prior to the year of search if no incriminating material is found in search for that year and the assessment is not pending on the date of search. Hence, we feel it proper to restore the matter back to CIT (A) for a fresh decision on this aspect about validity of invocation of section 153A in the light of this judgment of Hon ble Delhi high Court rendered in the case of Meeta Gutgutia (Supra) against which, SLP is dismissed by Hon ble apex court after finding out the facts as to whether any incriminating material was found in search or not. If the assessee succeeds on this aspect then nothing remains to be decided on merit but if the assessee fails on this technical aspect then the issues on merit should be decided by CIT (A) afresh because in our opinion, the issue on merit should be decided after deciding the technical issue. Hence, in view of this decision, we do not decide any issue on merit arising out of the appeal of the assessee or revenue. Appeals filed by the assessee and all three appeals filed by the revenue are allowed for statistical purposes.

Summary

Issues Involved:
1. Validity of invocation of section 153A in absence of incriminating material.
2. Disallowance under section 37.
3. Treatment of preliminary expenditure as capital expenditure.

Detailed Analysis:

1. Validity of Invocation of Section 153A in Absence of Incriminating Material:
The primary issue revolves around the validity of the invocation of section 153A of the Income-tax Act when no incriminating material was found during the search. The assessee argued that as per judicial precedents, including the judgment of the Hon’ble Karnataka High Court in Canara Housing Development Co. vs. DCIT and the Hon’ble Delhi High Court in PCIT vs. Meeta Gutgutia, the invocation of section 153A is invalid if no incriminating material is found. The Tribunal noted that the CIT(A) did not provide a finding on whether incriminating material was found, relying instead on the judgment of Canara Housing Development Co. The Tribunal clarified that this judgment is not relevant for determining if section 153A can be invoked without incriminating material when the assessment is not pending on the date of search. The Tribunal emphasized that the judgment of the Hon’ble Delhi High Court in Meeta Gutgutia, upheld by the Supreme Court, should be followed. Consequently, the Tribunal remanded the matter back to the CIT(A) to determine the factual aspect of whether any incriminating material was found during the search.

2. Disallowance Under Section 37:
For the assessment years 2010-11 and 2011-12, the issue of disallowance under section 37 was raised. The assessee contended that the expenses debited to the Profit and Loss account were revenue in nature and essential for running the business, and thus should be allowed as deductions. The CIT(A) had disallowed these expenses on the grounds that the business had not been set up. The Tribunal did not decide on the merits of this issue, as it would be contingent on the resolution of the primary issue regarding the invocation of section 153A. The Tribunal directed the CIT(A) to decide on the merits of the disallowance under section 37 afresh if the invocation of section 153A is found valid.

3. Treatment of Preliminary Expenditure as Capital Expenditure:
The revenue raised the issue of whether preliminary expenditure incurred several years before the commencement of the business can be considered capital expenditure. The CIT(A) had held that such expenditures are eligible for capitalization. The Tribunal noted that the CIT(A) had remanded the matter to the AO with directions, which is not permissible after the amendment to section 251. The Tribunal set aside the orders of the CIT(A) and directed a fresh decision on this issue as well, contingent on the determination of the validity of the invocation of section 153A.

Conclusion:
The Tribunal remanded the matter back to the CIT(A) for a fresh decision on the validity of the invocation of section 153A in light of the judgment of the Hon’ble Delhi High Court in Meeta Gutgutia. If the invocation is found invalid, no further issues need to be decided. If valid, the CIT(A) should then decide on the merits of the disallowance under section 37 and the treatment of preliminary expenditure as capital expenditure. All appeals by the assessee and the revenue were allowed for statistical purposes.

Order Pronounced:
The order was pronounced in the open court on the date mentioned on the caption page.