2016 (6) TMI 549 - AT - Income Tax

Validity of the assessment order passed u/s. 153A read with Section 143(3) - Held that - In the present case, the assessment had been completed under summary scheme under section 143(1) and time limit for issue of notice under section 143(2) had expired on the date of search. Therefore, there was no assessment pending in this case and in such a case there was no question of abatement. Therefore, addition could be made only on the basis of incriminating material found during search. The gift deeds and the copies of return of income of the donors that were found at the time of search could not be considered to be incriminating material for the purpose of addition in view of the fact that these very documents were the basis of the gifts that were considered by the assessee while crediting the capital account. Thus we are of the view that these assessments framed u/s.153A need to be quashed. Ordered accordingly. Legal issue has been decided in favour of the assessee.

Issues Involved:
1. Validity of the assessment order passed under section 153A read with Section 143(3) of the Income Tax Act, 1961.
2. Addition in respect of gifts received by the assessee considered as unexplained gifts under section 68 of the Act.
3. Charging of interest under sections 234A, 234B, and 234C of the Act.

Detailed Analysis:

1. Validity of the Assessment Order under Section 153A:

The primary contention was whether the assessments framed under section 153A were valid given that no incriminating material was found during the search. The assessee argued that the assessments for the years in question had already attained finality as the returns were processed under section 143(1) and the time limit for issuing notice under section 143(2) had expired. It was contended that the completed assessments could not be interfered with in the absence of any incriminating material found during the search.

The Tribunal referred to the provisions of section 153A and relevant judicial precedents, including the Delhi High Court's decision in the case of Kabul Chawla, which held that completed assessments can be interfered with under section 153A only on the basis of incriminating material found during the search. The Tribunal concluded that since no incriminating material was found during the search, the assessments framed under section 153A were not valid and needed to be quashed.

2. Addition of Unexplained Gifts under Section 68:

The Assessing Officer had made additions to the assessee's income by treating the gifts received as unexplained under section 68 of the Act. The assessee argued that the gifts were already accounted for in the respective assessment years and were reflected in the capital accounts. The gift deeds and copies of the donors' income tax returns found during the search were not new materials but documents supporting the already declared gifts.

The Tribunal noted that the Assessing Officer had relied on the gift deeds and post-search inquiries to conclude that the gifts were bogus. However, since these documents were already part of the assessee's records and no new incriminating material was found, the additions made under section 68 were not justified. The Tribunal held that the completed assessments could not be disturbed without incriminating material and directed the deletion of the additions.

3. Charging of Interest under Sections 234A, 234B, and 234C:

The assessee contested the charging of interest under sections 234A, 234B, and 234C, arguing that no such interest was leviable. Given that the primary issue of the validity of the assessments under section 153A was decided in favor of the assessee, the Tribunal found that the question of charging interest became academic and did not require separate adjudication.

Conclusion:

The Tribunal allowed the appeals, holding that the assessments framed under section 153A were invalid in the absence of incriminating material found during the search. Consequently, the additions made on account of unexplained gifts were deleted, and the issue of charging interest was rendered academic. The appeals for all the assessment years and for all the assessees involved were allowed on similar grounds.

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