2017 (8) TMI 958 - HC - Income Tax

Additions made in the course of proceedings under Section 153A/143(3) - reopening of assessment - Held that - The decision in Commissioner of Income Tax v. Kabul Chawla (2015 (9) TMI 80 - DELHI HIGH COURT) is still good law. That decision explicitly holds that there has to be incriminating material to justify the assumption to jurisdiction under Section 153A of the Act qua each of the AYs for which assessment is sought to be reopened. The categorical factual findings by the ITAT, which have not been shown by the Revenue to be perverse, are inter alia that the material seized does not show inflation of the profit of the eligible undertakings; or that the eligible undertakings are not carrying out manufacturing activities or that the material transferred to the eligible undertakings is less than the market value and that none of the material relates to the purchases from sister concerns. All of this is de hors the fact that the material pertains only to FY 2010-11. If, even for FY 2010-11, what was seized did not constitute incriminating material, then the essential jurisdictional fact for justifying the assumption of jurisdiction under Section 153A of the Act did not exist. In the present case there was no incriminating material seized qua each of the AYs the assessments for which were sought to be reopened. - Decided in favour of assessee.

Issues:
Jurisdiction under Section 153A of the Income Tax Act, 1961 for Assessment Years 2005-06, 2006-07, and 2007-08.

Analysis:

1. Background and Jurisdictional Question:
The appeals were against a common judgment by the ITAT for the mentioned Assessment Years. The main question framed was whether the ITAT erred in holding that additions made under Section 153A/143(3) were unwarranted, considering the judgment in CIT v. Kabul Chawla. The assessments for the years in question were completed by the AO under Section 143(3) of the Income Tax Act.

2. Search and Assessment Proceedings:
A search under Section 132 was conducted in a group engaged in tobacco and paan masala business. The Assessee filed its return under Section 153A declaring income. Issues arose regarding deductions claimed under Section 80-IB and 80-IC for different units.

3. AO's Assessment and CIT (A) Order:
The AO rejected the Auditor's report for not disclosing material transfers. The CIT (A) found seized documents relevant for justifying disallowance of deductions under Section 80IB/80IC.

4. ITAT Analysis and Conclusions:
The ITAT analyzed seized material and concluded that none of it related to the years under appeal or supported disallowance of deductions. The ITAT found no incriminating evidence regarding various aspects of the Assessee's operations.

5. Legal Arguments and Court's Decision:
The Revenue argued that seized material indicated a modus operandi for all years, justifying jurisdiction under Section 153A. The Assessee relied on previous court decisions emphasizing the need for incriminating material for each year. The Court found that even for the year in question, seized material was not incriminating. The Court upheld the previous decisions, ruling against the Revenue and in favor of the Assessee.

6. Conclusion and Dismissal of Appeals:
The Court dismissed the appeals, affirming the need for incriminating material to justify jurisdiction under Section 153A. The Court clarified the legal position regarding seized material and upheld the decisions in previous cases, resolving the issue in favor of the Assessee.

This detailed analysis provides a comprehensive overview of the judgment, focusing on the jurisdictional question under Section 153A of the Income Tax Act for the specified Assessment Years.

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