2020 (12) TMI 1336 - AT - Income Tax

Validity of assessment u/s 153A - Whether no incriminating evidence / material was found during the course of search? - HELD THAT - From the facts it emerges that the original return was filed by the assessee on 04/09/2008 and the search took place on 16/04/2013. Admittedly no assessment proceedings were pending against assessee on the date of search and it was not a case of abated assessment. Upon perusal of the assessment order it is quite evident that Ld. AO has not referred to any incriminating material against the assessee and the additions made therein are also not based on any incriminating material. The business expenditure claimed that is sought to be disallowed was already claimed in the original return of income. The facts of the case in our considered opinion are squarely covered in assessee s favor by the decision in CIT V/s Continental Warehousing Corporation (Nhava Sheva) Ltd. 2015 (5) TMI 656 - BOMBAY HIGH COURT as well in Gurinder Singh Bawa 2015 (10) TMI 1761 - BOMBAY HIGH COURT which has held that in the absence of any incriminating material the unabated assessments could not be disturbed. Similar is the view of Hon ble Delhi High Court in CIT V/s Kabul Chawla 2015 (9) TMI 80 - DELHI HIGH COURT . Thus we are inclined to setaside the additions so made in the hands of the assessee in the assessment order. The ground thus raised stand allowed. Disallowance of business expenditure - business had not been commenced - HELD THAT - Upon due consideration we find that the premises was taken on lease since 2006 and the business could not be commenced by the assessee till AY 2014-15 which would substantiate the fact that there was not any temporary dormancy or lull period for the business. No fresh material has been placed before us to disturb these findings rendered by learned first appellate authority. However in our considered opinion the expenditure which was quite necessary to maintain assessee s corporate personality would be an allowable expenditure since without incurring the same the assessee could not have remained into existence. Therefore we direct Ld. AO to identify such expenditure and allow the same to that extent. The assessee is directed to furnish the requisite details in this regard.

Summary

Issues Involved:
1. Validity of assessment proceedings under Section 153A without incriminating material.
2. Non-issuance of notice under Section 143(2) within the prescribed time.
3. Disallowance of business expenses.
4. Set-off of brought forward losses.

Detailed Analysis:

Issue 1: Validity of Assessment Proceedings Under Section 153A Without Incriminating Material
The assessee contested the validity of the assessment proceedings under Section 153A, arguing that the additions were not based on any incriminating material unearthed during the search. The Tribunal noted that the original return was filed on 04/09/2008, and no assessment proceedings were pending at the time of the search on 16/04/2013. The Tribunal observed that the Assessing Officer (AO) did not refer to any incriminating material in the assessment order, and the disallowed business expenditure was already claimed in the original return. The Tribunal relied on the decisions of the Hon'ble Bombay High Court in CIT V/s Continental Warehousing Corporation (Nhava Sheva) Ltd. (2015 374 ITR 645) and Gurinder Singh Bawa (2016 386 ITR 418), which held that in the absence of any incriminating material, the unabated assessments could not be disturbed. Consequently, the Tribunal set aside the additions made by the AO.

Issue 2: Non-Issuance of Notice Under Section 143(2) Within the Prescribed Time
The assessee argued that the assessment order was void for want of jurisdiction since the notice under Section 143(2) was not issued within the prescribed time. The Tribunal noted that this ground was rejected by the CIT(A) based on the decision of the Hon'ble Delhi High Court in Ashok Chaddha V/s ITO (337 ITR 399). The Tribunal did not delve deeper into this issue as the main legal ground regarding the absence of incriminating material was already decided in favor of the assessee.

Issue 3: Disallowance of Business Expenses
The AO disallowed business expenses claimed by the assessee on the grounds that the business had not commenced. The CIT(A) upheld this disallowance, observing that the assessee had not started any business during the year. The Tribunal, however, noted that the expenses necessary to maintain the corporate personality of the assessee should be allowed. For AY 2014-15, the Tribunal directed the AO to identify and allow such necessary expenses, as the business had not commenced, but certain expenses were essential for maintaining the corporate status.

Issue 4: Set-off of Brought Forward Losses
The Tribunal did not specifically address the issue of set-off of brought forward losses, as the primary legal ground regarding the absence of incriminating material was decided in favor of the assessee, rendering other grounds academic in nature.

Conclusion:
The Tribunal partly allowed the appeals for AYs 2008-09 to 2013-14, setting aside the additions made by the AO due to the absence of incriminating material. For AY 2014-15, the Tribunal allowed the appeal for statistical purposes, directing the AO to identify and allow necessary expenses to maintain the corporate personality of the assessee.