2018 (5) TMI 1016 - AT - Income Tax

Assessment u/s 153A - gifts treated as cash credit - Held that - In the case of CIT vs. Gurinder Singh Bawa (2015 (10) TMI 1761 - BOMBAY HIGH COURT) held that once an assessment was not pending but had attained finality for a particular year it could not be subject to proceedings under section 153A if no incriminating materials were gathered in the course of search or during the proceedings under section 153A which were contrary to and were not disclosed during the regular assessment proceedings. In this case, the assessee filed the return of income which was processed under section 143(1) of the Act and no notice under section 143(2) was issued and the AO made assessment for the year in question qua the sums declared by the assessee as gifts treating them as cash credit covered under section 153 of the Act. The Hon ble Bombay High Court applied the view taken in the case of CIT vs. Continental Warehousing Corporation (Nhava Sheva) Ltd. (2015 (5) TMI 656 - BOMBAY HIGH COURT). We, therefore, respectfully following the ratio laid down by the Hon ble Bombay High Court, direct the AO to delete all the additions made in this year - Decided in favour of assesse

Summary

Issues involved:
1. Validity of assessment under section 143(3) read with section 153A of the Income Tax Act.
2. Disallowance of expenses under section 37 of the Income Tax Act for assessment years 2009-10 & 2010-11.

Issue 1: Validity of assessment under section 143(3) read with section 153A of the Income Tax Act:
The appeal challenged the order passed under section 143(3) read with section 153A of the Act, contending that the assessment had attained finality without a notice under section 143(2) being served and no incriminating material was found during the search. The ITAT observed that the assessment was completed before the search, and no incriminating material was discovered. The ITAT referenced legal precedents, including CIT vs. Gurinder Singh Bawa, to emphasize that assessments finalized before the search cannot be reopened without incriminating evidence. Consequently, the ITAT directed the AO to delete all additions made in the relevant year as they lacked incriminating basis.

Issue 2: Disallowance of expenses under section 37 of the Income Tax Act:
In the appeal for assessment year 2010-11, the challenge was against the disallowance of expenses under section 37 of the Act. The appellant argued that similar expenses had been allowed in a previous year by a co-ordinate bench of the Tribunal, emphasizing that the expenses were incurred wholly for business purposes. The ITAT noted the consistency with the previous decision and directed the AO to delete the disallowed amount of &8377; 2,03,597. Consequently, the appeal for this issue was partly allowed.

In conclusion, the ITAT partially allowed both appeals, ruling in favor of the assessee on the validity of the assessment under section 143(3) read with section 153A and the disallowance of expenses under section 37 of the Income Tax Act for the respective assessment years.