2018 (9) TMI 869 - AT - Income Tax

Assessment u/s 153A - Held that - It is undisputed fact that the assessment for impugned AY was non-abated assessment since no proceedings were pending for the same on the date of search i.e. 30/03/2012. The original return of income was filed by the assessee on 07/05/2010 and the time limit for issuance of scrutiny assessment notice u/s 143(2) had already expired which was a statutory requirement to scrutinize the return of income of the assessee. The impugned additions are not based on any incriminating material found during the search operations since the expenditure as claimed by the assessee has been disallowed by placing reliance on Section-3 since AO opined that the business was not set-up by the assessee during impugned AY. However, it is noteworthy that the genuineness of the expenditure is also not in question since Ld. AO himself has treated the same as capital expenditure. Another point to be noted is that impugned order record a finding that majority of these expenditure have already been disallowed by the assessee while filing the original return of income which could not be controverted by the revenue - no addition can be made in respect of assessments which have become final if no incriminating material is found during search or during 153A proceedings - See CIT Vs. Kabul Chawla 2015 (9) TMI 80 - DELHI HIGH COURT . - Decided in favour of assessee

Issues Involved:

1. Validity of additions made under Section 153A in the absence of incriminating material.
2. Conceptual difference between Section 143(1)(a) intimation and Section 143(3) assessment.
3. Harmonious construction of Section 153A with other sections.
4. Interpretation of statute to avoid absurdity and illogical conclusions.

Issue-wise Detailed Analysis:

1. Validity of Additions under Section 153A:
The primary issue was whether the addition of ?1,35,08,000/- made by the Assessing Officer (AO) under Section 153A was valid without any incriminating material found during the search. The assessee was assessed under Section 153A following a search action under Section 132. The AO disallowed the expenses claimed by the assessee on the grounds that the business had not commenced, thus treating the expenses as capital expenditure. However, the CIT(A) deleted the addition, stating that in the absence of any incriminating material, the addition was beyond the scope and ambit of an assessment under Section 153A. The Tribunal upheld the CIT(A)'s decision, citing the Bombay High Court's judgment in CIT Vs. Continental Warehousing Corporation, which held that no additions could be made if no incriminating material was found during the search.

2. Conceptual Difference between Section 143(1)(a) Intimation and Section 143(3) Assessment:
The Tribunal discussed the Supreme Court's ruling in ACIT v/s Rajesh Jhaveri, which clarified that an intimation under Section 143(1)(a) is not an assessment. The Tribunal noted that the assessment for the impugned AY was non-abated as no proceedings were pending on the date of the search. The original return was filed, and the time limit for issuing a scrutiny notice under Section 143(2) had expired. Therefore, the AO's reliance on Section 3 to disallow the expenses was not justified without any incriminating material.

3. Harmonious Construction of Section 153A:
The Tribunal emphasized the need for a harmonious construction of Section 153A with other sections to ensure that the interpretation does not lead to illogical conclusions. The Tribunal noted that the second proviso to Section 153A(1) states that pending assessments or reassessments shall abate on the date of the search. However, assessments that have attained finality cannot be disturbed unless new incriminating material is found. This interpretation aligns with the Bombay High Court's judgment in the case of M/s. Murli Agro Products Limited.

4. Interpretation to Avoid Absurdity:
The Tribunal rejected the revenue's argument that limiting the AO's powers to only consider incriminating material found during the search would render Section 153A irrelevant. The Tribunal held that such an interpretation would lead to absurdity and contradict the purpose of search and seizure operations. The Tribunal reiterated that assessments which have attained finality can only be reassessed based on new incriminating material found during the search.

Conclusion:
The Tribunal upheld the CIT(A)'s decision to delete the addition of ?1,35,08,000/- made by the AO under Section 153A. The Tribunal found that the addition was beyond the scope of Section 153A as no incriminating material was found during the search. The Tribunal relied on the binding judicial precedent set by the Bombay High Court in CIT Vs. Continental Warehousing Corporation and dismissed the revenue's appeal. The Tribunal also dismissed the assessee's cross-objections as infructuous.

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