2018 (8) TMI 1132 - AT - Income Tax

Validity of assessment passed u/s 153A r.w.s. 143(3) - no notice u/s.143(2) was issued - Ld.CIT(A) erred in holding that no notice u/s.143(2) was required to be served on the appellant for the purpose of completing the asst. u/s.153A - Period of limitation u/s 153B - Held that - HC in 2011 (7) TMI 252 - DELHI HIGH COURT has held that, issue of notice u/s.143(2) of the Act is not mandatory in a case of the assessment made u/s.153A of the Act, therefore this issue is decided against the assessee. Validity of additions made u/s 153A - Held that - Considering the undisputed position in this regard, we are of the opinion that this is a case where both the additions are made without having support of any incriminating material and therefore, they constitute the additions to be made in the regular assessment only. Regarding the regular assessment, it is a fact that the same is an unabated assessment in this case. - The due date for issue of notice u/s.143(2) expired in November, 2003. - the assessment is undisputedly a non-abated assessment. Therefore, the additions, if any have to be made only with the support of any incriminating material.

Issues Involved:

1. Validity of assessment under Section 153A without notice under Section 143(2).
2. Assessment barred by limitation under Section 153B.
3. Validity of warrant of authorization.
4. Addition of income from house property.
5. Addition of agricultural income as income from other sources.
6. Charging of interest under Sections 234A, 234B, and 234C.
7. Disallowance under Section 40A(3).
8. Treatment of gain on sale of agricultural land as business income.

Detailed Analysis:

1. Validity of Assessment under Section 153A Without Notice under Section 143(2):

The assessee contended that the assessment made by the AO under Section 153A read with Section 143(3) was invalid due to the absence of a notice under Section 143(2) within the prescribed time limit. The CIT(A) held that no notice under Section 143(2) was required for completing the assessment under Section 153A. The Tribunal, considering the binding High Court judgment in Ashok Chaddha vs. ITO (337 ITR 399), ruled that the issue of notice under Section 143(2) is not mandatory in a case of assessment under Section 153A. Consequently, the grounds raised by the assessee on this issue were dismissed.

2. Assessment Barred by Limitation under Section 153B:

The assessee argued that the assessment order was served beyond the limitation period prescribed under Section 153B. However, this ground was not pressed by the assessee during the appellate proceedings and was dismissed as 'not pressed'.

3. Validity of Warrant of Authorization:

The assessee raised an issue regarding the validity of the warrant of authorization, arguing that it was issued in the name of more than one person, making the assessment under Section 153A illegal. This ground was also not pressed by the assessee and was dismissed as 'not pressed'.

4. Addition of Income from House Property:

The AO made an addition of ?42,000 as income from house property, citing that the assessee had not shown income from certain properties in his return. The CIT(A) confirmed this addition. The Tribunal, however, noted that the addition was made without any incriminating material found during the search. Since the assessment was non-abated, the addition could only be made if supported by seized material. The Tribunal, therefore, ruled that the addition was unsustainable and allowed the assessee's ground on this issue.

5. Addition of Agricultural Income as Income from Other Sources:

The AO treated the assessee's claim of ?19,200 as agricultural income as income from other sources. The CIT(A) upheld this addition. The Tribunal observed that the addition was made without any incriminating material found during the search. Given that the assessment was non-abated, the addition was deemed unsustainable. The Tribunal allowed the assessee's ground on this issue.

6. Charging of Interest under Sections 234A, 234B, and 234C:

The assessee contested the interest charged under Sections 234A, 234B, and 234C. The Tribunal dismissed this ground as consequential in nature.

7. Disallowance under Section 40A(3):

For the assessment years 2003-04 to 2005-06, the AO disallowed certain expenses under Section 40A(3) due to cash payments exceeding the prescribed limit. The assessee argued that these were capital assets and not trading assets, and no incriminating evidence was found during the search. The Tribunal agreed with the assessee, noting the absence of any incriminating material and ruled that the disallowance was unsustainable. The ground was allowed in favor of the assessee.

8. Treatment of Gain on Sale of Agricultural Land as Business Income:

The AO treated the gain on the sale of agricultural land as business income, which the assessee claimed was exempt. The Tribunal noted that the assessment was non-abated and no incriminating material was found during the search. Therefore, the addition was deemed unsustainable. The Tribunal directed the AO to delete the addition, allowing the assessee's ground on this issue.

Conclusion:

The appeals of the assessee for the assessment years 2002-03 to 2005-06 were partly allowed, with the Tribunal ruling in favor of the assessee on several grounds, particularly those involving additions made without incriminating material in non-abated assessments.

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