2020 (2) TMI 1718 - AT - Income Tax

Assessment u/s 153A/153C - addition by invoking the provisions of section 14A r.w.r. 8D and by disallowing the freight charges - HELD THAT - There is no dispute as to the dates submitted on behalf of the assessee. As could be seen the original return of income for the assessment year 2009-10 was filed by the assessee on 29.09.2009 and six months period from the end of the financial year in which such return was furnished, to issue notice u/s. 143(2) expired on 30.09.2010. It is, therefore, clear that by 09.05.2012 itself, such an assessment stood concluded. It is not the case of Revenue that the additions made in this matter had any reference to any particular document or material that was unearthed during the search so as to justify the reopening of assessment and the additions. It is settled principle of law that in terms of decision in the case of Kabul Chawla 2015 (9) TMI 80 - DELHI HIGH COURT , Chintels India Ltd 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 AO 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. Thus, in the cases of concluded assessment, no addition/disallowance could be made in the absence of any incriminating material found during the course of search. In view of the settled principle of law, we do not find any justification either for reopening of the concluded assessment or making any addition without any reference or nexus to the material that was seized during the search and the same cannot be sustained. Therefore, the impugned assessment order passed u/s. 153C is quashed - Appeal of the assessee is allowed.

Summary

Issues involved: Challenge to order u/s. 153C for assessment year 2009-10 based on search and seizure operation, validity of additions made u/s. 153A(1)(b) and disallowance of freight charges.

Challenge to order u/s. 153C:
The appeal was filed by M/s Frontier Commercial Company Ltd. against the order dated 06/03/2017 passed by the Commissioner of Income Tax (Appeals)- Karnal. The assessee contended that no incriminating document was found during the search proceedings, therefore, no addition could have been made by reopening the concluded assessment. The CIT(A) disagreed, citing the need for the search to uncover disallowed expenditure details. The CIT(A) referred to a differing opinion by the Kerala High Court and confirmed the addition, leading to the appeal before the Tribunal.

Validity of additions u/s. 153A(1)(b):
The assessee argued that the assessment for the year 2009-10 was concluded before the search, and no incriminating material was found to justify reopening the assessment or making any additions. The Assessing Officer doubted the freight charges, which the assessee deemed untenable. The Departmental Representative contended that the search led to detecting reasons for disallowances, making it valid to sustain the addition despite the decision in the Kabul Chawla case.

Disallowance of freight charges:
The assessee maintained that the assessment for the relevant year was already concluded before the search, and no incriminating material was found to support the reopening of the assessment or the disallowance of freight charges. The Tribunal noted that the additions made lacked reference to any material unearthed during the search, contravening the principle established by the jurisdictional High Court in the Kabul Chawla case. The Tribunal emphasized that assessments and reassessments pending at the time of the search should abate, and any additions must be based on seized material, leading to the quashing of the impugned assessment order u/s. 153C.

This judgment highlights the importance of abiding by legal principles and ensuring that additions or disallowances are supported by relevant material, especially in cases involving search and seizure operations under the Income Tax Act. The Tribunal's decision to quash the assessment order u/s. 153C underscores the necessity for a nexus between the seized material and any additions made during assessments, as established by precedents set by the jurisdictional High Court.