2016 (4) TMI 576 - AT - Income Tax

Disallowance of long term capital loss - assessment u/s 153A - Held that - Addition made by the AO by disallowing long term capital loss was not based on any incriminating material found during search operation. Accordingly, the addition is held to be not sustainable in law and so directed to be deleted.- Decided in favour of assessee.

Summary

Issues Involved:
1. Deletion of disallowance of long-term capital loss on sale of property.
2. Admission of additional evidence by CIT(A) and compliance with Rule 46A.
3. Jurisdictional validity of additions made under section 153A/143(3) without incriminating material.

Issue-Wise Detailed Analysis:

1. Deletion of Disallowance of Long-Term Capital Loss on Sale of Property:
The revenue contested the deletion of disallowance of long-term capital loss of Rs. 1,05,76,383/- incurred on the sale of property located at Masjid Moth, Greater Kailash-II, New Delhi. The Assessing Officer (AO) disallowed the loss, arguing that the property was not shown in the balance sheet of earlier years, suggesting it was acquired from sources outside the books of accounts. However, the CIT(A) found that the property had been duly reflected in the assessee's books of accounts from Assessment Years 1994-95 to 2003-04. The CIT(A) also noted that the purchase and sale deeds of the property were consistent with the assessee's claims. Consequently, the CIT(A) deleted the addition made by the AO, holding that the property was accounted for and the long-term capital loss was allowable.

2. Admission of Additional Evidence by CIT(A) and Compliance with Rule 46A:
The revenue argued that the CIT(A) erred in admitting additional evidence, such as the purchase and sale deeds, without giving the AO an opportunity to examine these documents, thus violating Rule 46A. The CIT(A) admitted these documents under Rule 46A(1)(b) and (d), considering that the property was sold five years prior and the assessee was given only 40 days to collect all details. The CIT(A) also clarified that the balance sheets from Assessment Years 1994-95 to 2003-04 were part of the AO's assessment record, and thus, not new evidence. The Tribunal upheld the CIT(A)'s decision, noting that the AO was given an opportunity to comment on the documents during the appellate proceedings.

3. Jurisdictional Validity of Additions Made Under Section 153A/143(3) Without Incriminating Material:
The assessee's cross objection challenged the jurisdictional validity of the additions made under section 153A/143(3), arguing that no incriminating material was seized during the search. The Tribunal referenced the Supreme Court's decision in National Thermal Power Co. Ltd. vs. CIT, which allows raising new grounds of appeal if they pertain to the assessee's tax liability. The Tribunal noted that the AO's assessment order did not mention any incriminating material found during the search. Citing the jurisdictional High Court's decision in CIT vs. Kabul Chawla, the Tribunal reiterated that completed assessments could only be interfered with based on incriminating material unearthed during the search. Since the addition was not based on any such material, it was held to be unsustainable in law.

Conclusion:
The Tribunal dismissed the revenue's appeal and allowed the assessee's cross objection. The deletion of the disallowance of long-term capital loss was upheld, and the jurisdictional validity of the additions made under section 153A/143(3) without incriminating material was confirmed. The Tribunal concurred with the CIT(A)'s findings and did not record separate reasons, relying on the Supreme Court's decision in CIT vs. K.Y. Pilliah & Sons.