2018 (10) TMI 1495 - AT - Income Tax

Revision u/s 263 - assessment u/s 153A - Non recoverable parts of sundry balance written off (nature not specified) - Non recoverable parts of sundry balance written off (nature not clear) - Held that - We note that in this case since there was no incriminating material unearthed during the search, the Assessing Officer has not made any additions in his assessment order dated 31.03.2016, based on incriminating material since there was none unearthed. We take note that it is not the case of Principal CIT that AO failed to made any additions/disallowances based on incriminating material seized/unearthed during search. On this finding of fact by us, we cannot term the assessment order passed by the AO u/s 153A/143(3) dated 31.03.2016 as erroneous. In relation to the years whose assessment is completed, it is laid down by law that in such situations of completed assessment, assessment u/s 153A of the Income Tax Act, 1961 however shall be to the extent of undisclosed income which is found during the course of search with reference to the valuable articles or things found or documents seized during the search which are not disclosed in the original assessment. The power given by the 1st proviso of section 153A of the Income Tax Act, 1961 to assess income for six assessment years has to be confined to the undisclosed income unearthed during search and cannot include items which are disclosed in the original assessment proceedings. Items of regular assessment cannot be added back in the proceedings u/s 153A when no incriminating documents were found in respect of the disallowed amounts in the search proceedings. A search assessment under section 153A should be evidence based. - Decided in favour of assessee.

Issues Involved:
1. Jurisdiction under Section 263 of the Income Tax Act.
2. Absence of incriminating material in search proceedings.
3. Allowability of write-offs and disallowances.
4. Rectification of apparent mistakes under Section 154 versus revision under Section 263.

Detailed Analysis:

1. Jurisdiction under Section 263 of the Income Tax Act:
The appeal challenges the correctness of the order passed by the Principal Commissioner of Income Tax (Pr. CIT) under Section 263 of the Income Tax Act, 1961. The Pr. CIT exercised jurisdiction under Section 263, alleging that the assessment order passed by the AO under Section 153A read with Section 143(3) was erroneous and prejudicial to the interests of the revenue. The Pr. CIT noted that the AO failed to disallow certain write-offs and operating expenses, which were not substantiated by incriminating material found during the search.

2. Absence of Incriminating Material in Search Proceedings:
The assessee argued that the AO's assessment under Section 153A should be restricted to incriminating documents unearthed during the search. Since no incriminating materials were found during the search conducted on 13.03.2014, the additions made by the AO in the assessment order were not justified. The assessee relied on the judgments of the Hon’ble Calcutta High Court in CIT vs. Veerparabhu Marketing Ltd. and the Hon’ble Delhi High Court in CIT vs. Kabul Chawla, which held that additions in an unabated assessment can only be made based on incriminating material found during the search.

3. Allowability of Write-offs and Disallowances:
The Pr. CIT observed that the AO allowed the assessee's claim of sundry balance write-offs amounting to ?58,63,145 and ?1,31,233 without proper examination. The Pr. CIT noted that these write-offs were not substantiated by any incriminating material found during the search and were not considered in the computation of income in earlier years. The Pr. CIT also noted that an amount of ?10 lakh, disallowed in the original assessment, was not disallowed in the assessment under Section 153A/143(3).

4. Rectification of Apparent Mistakes under Section 154 versus Revision under Section 263:
The assessee contended that the disallowance of ?10 lakh, which was not considered in the assessment under Section 153A/143(3), could be rectified under Section 154 as an apparent mistake. The Pr. CIT, however, held that the assessment order was erroneous and prejudicial to the interests of the revenue and required revision under Section 263.

Tribunal's Findings:
The Tribunal held that the assessment for AY 2009-10 was not pending on the date of the search, making it an unabated assessment. Therefore, additions could only be made based on incriminating material found during the search. The Tribunal found that no incriminating material was unearthed during the search, and the AO's assessment was based on information already available during the original assessment under Section 143(3). The Tribunal held that the AO's order was neither erroneous nor prejudicial to the interests of the revenue, as the additions were not based on any new incriminating material.

The Tribunal quashed the Pr. CIT's order under Section 263, holding that the AO's assessment under Section 153A/143(3) was justified and did not warrant revision. The appeal filed by the assessee was allowed.

Conclusion:
The Tribunal concluded that the Pr. CIT erred in exercising jurisdiction under Section 263, as the AO's assessment was not based on any incriminating material found during the search. The AO's order was neither erroneous nor prejudicial to the interests of the revenue, and the Pr. CIT's order was quashed.

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