2017 (1) TMI 623 - AT - Income Tax

Validity of assessment u/s 153A - addition to income - Held that - The additions made by the AO are beyond the scope of section 153C of the Income Tax Act 1961 because no incriminating material or evidence had been found during the course of search so as to doubt the transactions. It was noted that in the entire assessment order the AO has not referred to any seized material or other material for the year under consideration having being found during the course of search in the case of assessee leave alone the question of any incriminating material for the year under appeal. The action of the AO is based upon conjectures and surmises and hence the additions made is not sustainable in the eyes of law because this issue in dispute is now no more res-integra in view of the decision dated 28.8.2015 of the Hon ble Delhi High Court in the case of Commissioner of Income Tax vs. Kabul Chawla (2015 (9) TMI 80 - DELHI HIGH COURT) - Decided in favour of assessee

Summary

Issues:
1. Validity of the assessment order passed under section 153C/143(3) of the Income Tax Act, 1961.
2. Addition of expenses under sections 35D, 14A, and 36(1)(iii) of the I.T. Act, 1961.
3. Disallowance of share capital under the I.T. Act.
4. Legality of assuming jurisdiction under section 153C of the Act.

Issue 1: Validity of the assessment order under section 153C/143(3) of the Income Tax Act, 1961:
The case involved an appeal by the Revenue and a cross objection by the Assessee against the order dated 28.6.2013 of the Ld. CIT(A)-XXXI, New Delhi relevant to assessment year 2006-07. The Assessee challenged the validity of the assessment order passed under section 153C/143(3) of the I.T. Act, 1961. The Assessee contended that the additions made by the Assessing Officer (AO) were not based on any incriminating material found during the search operation, rendering them unsustainable in law. The Assessee cited relevant judgments to support their argument. The Tribunal found that the AO's additions were beyond the scope of section 153C as no incriminating material was found during the search. Relying on the decision of the Hon'ble Delhi High Court, the Tribunal quashed the assessment order, deciding in favor of the Assessee.

Issue 2: Addition of expenses under sections 35D, 14A, and 36(1)(iii) of the I.T. Act, 1961:
The Revenue raised grounds regarding the deletion of various additions made by the AO under sections 35D, 14A, and 36(1)(iii) of the I.T. Act, 1961. The Ld. CIT(A) had deleted these additions, leading to the Revenue's appeal. However, the Tribunal found that the AO's actions were not supported by any incriminating material and were based on conjectures and surmises. Consequently, the Tribunal held that the additions were not sustainable in law, in line with the decision of the Hon'ble Delhi High Court. Therefore, the Tribunal dismissed the Revenue's appeal, upholding the deletion of these additions.

Issue 3: Disallowance of share capital under the I.T. Act:
The Revenue contested the deletion of a disallowance of share capital made by the AO. The Ld. CIT(A) had ruled in favor of the Assessee on this matter. However, the Tribunal, considering the lack of incriminating material and the legal precedents cited, found that the disallowance was not valid. Consequently, the Tribunal allowed the Assessee's Cross Objection on this issue.

Issue 4: Legality of assuming jurisdiction under section 153C of the Act:
The Assessee challenged the assumption of jurisdiction under section 153C of the Act, arguing that it was not in accordance with the law. The Tribunal, after considering the arguments presented by both parties and the relevant case laws, concluded that the assessment order passed by the AO was bad in law. Relying on the decision of the Hon'ble Delhi High Court, the Tribunal quashed the assessment order, deciding in favor of the Assessee. Consequently, the Assessee's Cross Objection was allowed, and the Revenue's appeal was dismissed.

In conclusion, the Tribunal ruled in favor of the Assessee on all issues, quashing the assessment order under section 153C/143(3) of the I.T. Act, 1961, and dismissing the Revenue's appeal. The legal issues were meticulously analyzed, considering the absence of incriminating material and the relevant legal precedents, leading to a comprehensive judgment in favor of the Assessee.