2017 (11) TMI 380 - AT - Income Tax

Validity of assessment u/s 153A - Prior Period expenses addition - Held that - Relevant discussion in the assessment order does not show that it is based on any incriminating material found in the course of search. Thus, the ratio of the judgment of the Hon ble Bombay High Court in the case All Cargo Global Logistics Ltd. (2015 (5) TMI 656 - BOMBAY HIGH COURT) is clearly attracted and the same is outside the purview of the impugned assessment finalized under section 143(3) r.w.s. 153A of the Act. - Decided in favour of assessee.

Summary

Issues:
1. Challenge to addition of prior period expenses in assessment under section 143(3) r.w.s. 153A.
2. Admissibility of Additional Ground of appeal based on absence of incriminating material.
3. Disallowance under section 37(1) of the Act.
4. Penalty under section 271(1)(c) concerning disallowance of prior period expenses and cost of production.

Analysis:

Issue 1: The appeal challenged the addition of prior period expenses in the assessment under section 143(3) r.w.s. 153A. The assessee contested the addition of &8377; 19,65,690 on the grounds that it lacked incriminating material from the search. The Tribunal admitted the Additional Ground of appeal, citing legal precedents, and found the addition to be outside the scope of the assessment. Consequently, the order of the CIT(A) was set aside, directing the Assessing Officer to delete the addition.

Issue 2: The admissibility of the Additional Ground of appeal was contested, with the Revenue arguing against its admission due to not being raised before lower authorities. However, the Tribunal admitted the Ground as it involved a pure point of law with necessary facts on record, following the judgment of the Hon'ble Supreme Court. The Tribunal proceeded to adjudicate the Additional Ground on its merits.

Issue 3: The disallowance under section 37(1) of the Act was also addressed. The CIT(A) had sustained a partial disallowance, which was further challenged by the assessee. The Tribunal noted that part relief was already granted by the CIT(A), and as there was no appeal by the Revenue, the discussion was deemed unnecessary. The Tribunal upheld the relief granted by the CIT(A) on this aspect.

Issue 4: The penalty under section 271(1)(c) was examined concerning the disallowance of prior period expenses and cost of production. The Tribunal emphasized the independence of penalty proceedings from assessment proceedings. It allowed the assessee to contest the addition's legality in penalty proceedings, ultimately setting aside the penalty levied on the disallowance of cost of production. The Tribunal ruled that if the addition itself was unsustainable, the penalty under section 271(1)(c) was not applicable, leading to the success of the assessee in this appeal as well.

In conclusion, the Tribunal allowed the appeals of the assessee, addressing each issue comprehensively and providing legal reasoning for the decisions made.