2017 (3) TMI 1321 - AT - Income Tax

Vladity of assessment u/s 153A - Held that - AO has completed the assessment and made the addition in dispute without any incriminating material found during the search and seizure operation and the addition in this case was purely based on the material already available on record. Hence, the addition in the case is deleted and the ground raised by the assessee in the appeal is allowed.

Summary

Issues:
1. Disallowance under section 40A(3) of the Income Tax Act, 1961.
2. Jurisdiction to pass assessment order under section 153A.
3. Charging interest under section 234B of the Income Tax Act, 1961.

Analysis:
1. The case involved the disallowance of a sum under section 40A(3) of the Income Tax Act, 1961. The Assessing Officer (AO) disallowed a specific amount paid in cash by the assessee during the financial year 2006-07, leading to an addition to the total income. The CIT(A) confirmed this disallowance. However, the Tribunal found that the AO's action was not sustainable as it was based on payments made in excess of the limit prescribed by section 40A(3) without any incriminating material found during the search operation. The Tribunal referred to relevant case law and held that the additions made were beyond the scope of jurisdiction under section 153A, ultimately allowing the appeal and deleting the addition.

2. The issue of jurisdiction to pass the assessment order under section 153A was raised in the appeal. The assessee contended that the additions made were not based on any incriminating material found during the search operation, making them unsustainable in law. The Tribunal agreed with the assessee, emphasizing that the AO had not referred to any seized material or incriminating evidence for the relevant assessment year. Citing a decision of the Delhi High Court, the Tribunal concluded that the AO's actions were based on conjectures and surmises, lacking a legal basis. As a result, the Tribunal allowed the appeal, highlighting the necessity of incriminating material for additions under section 153A.

3. Another issue raised was the charging of interest under section 234B of the Income Tax Act, 1961. The CIT(A) had not reversed the AO's decision to charge interest, leading to this ground of appeal. However, the Tribunal's primary focus was on the disallowance under section 40A(3) and the jurisdiction under section 153A. Given the Tribunal's findings on these key issues, the matter of charging interest under section 234B was not separately addressed in the detailed analysis. Ultimately, the Tribunal allowed the appeal based on the unsustainable additions made by the AO without incriminating material, leading to the deletion of the disputed addition and a favorable decision for the assessee.