2016 (8) TMI 813 - HC - Income Tax

Assessment u/s 153A - disallowances of the expenditure - Held that - We are in agreement with the views expressed in CIT, Bangalore Vs. IBC Knowledge Park (P) Ltd. 2016 (5) TMI 372 - KARNATAKA HIGH COURT that incriminating material is a pre-requisite before power could have been exercised under section 153C read with section 153A. In the case before us, the assessing officer has made disallowances of the expenditure, which were already disclosed, for one reason or the other. But such disallowances were not contemplated by the provisions contained under section 153C read with section 153A. The disallowances made by the assessing officer were upheld by the CIT(A) but the learned Tribunal deleted those disallowances.

Summary

Issues:
Challenge to judgment and order of Income Tax Appellate Tribunal regarding assessment years 1998-2004.

Analysis:
The High Court addressed three key questions of law raised in the appeal. The first issue revolved around whether the assessments were correctly made under section 143(1) of the Income Tax Act and if disallowances under section 153A were necessary. The Court emphasized the distinction between reassessment and regular assessment under sections 143(1) and 147, stating that disallowances were not required under section 153A if already made under section 143(1) or 147. The second question involved the misinterpretation of CBDT's Circular No.7 concerning assessments under sections 143(3), 144, or 147. The third issue focused on the interpretation of a decision by the Jharkhand High Court and whether disallowances under section 153A were necessary for assessments under section 143(1) or 147.

The Court considered the submissions made by the appellant's advocate, emphasizing that assessments under section 153C with section 153A were without jurisdiction due to lack of incriminating material found during the survey under section 133A. The appellant argued that the power under section 153C could only be exercised if incriminating material was discovered, as per the provisions of the Income Tax Act. The Court highlighted the necessity of incriminating material for invoking section 153C, citing a Karnataka High Court judgment to support this requirement.

The respondent's advocate acknowledged that section 153C with section 153A applied to searches and requisitions, not surveys under section 133A. However, the respondent contended that there was both a search and a requisition in this case, justifying the exercise of power under section 153C. Despite this, the Court found that no incriminating material was presented by the respondent, as required by law for invoking section 153C.

Ultimately, the Court agreed with the Karnataka High Court's stance that the presence of incriminating material was essential before utilizing section 153C with section 153A. In this case, the assessing officer's disallowances, not covered under section 153C with section 153A, were overturned by the Tribunal. The Court upheld the Tribunal's decision, dismissing the appeal and affirming the deletion of disallowances. The judgment clarified the legal requirements for invoking specific sections of the Income Tax Act and emphasized the significance of incriminating material in such assessments.