2018 (12) TMI 459 - AT - Income Tax

Revision u/s 263 - assessment u/s 153A - poof of incriminating material unearthed during the course of search - satisfaction of twin conditions being erroneous and prejudicial to the interest of Revenue - assessee has debited expenses towards the shortage of material and is of the opinion that assessee s primary business is transportation of iron ore and other minerals to various mines to railway siding and loading of the same material into railway rack for onward transportation - whether the assessee has been incurring such expenditure from the earlier years as envisaged before us considering the type of business activity and claim of expenditure Held that - We are of the opinion on the subject matter of shortage of expenses envisaged by the ld. AR as per the questionnaire in the original assessment proceedings, where the assessee has satisfied the availability of evidence and the assessment was completed - substance in the submissions of AR that the expenditure claimed by the assessee considering the business is normal in nature and the business operations of expenditure is arising out of shortages, which has already been submitted and completed assessments can be interfered with by the Assessing Officer while making the assessment under section 153A only on the basis of incriminating material unearthed during the course of search which are not produced. When no incriminating material was found in respect of shortage of materials in the course of search operations, therefore, the order of revision u/s.263 of the Act by Pr. CIT cannot be sustained. Hence, applying the above ratio decidendi to the present case, we quash the order u/s.263 of the Act passed by the Pr. CIT and allow the grounds of appeal of the assessee.

Summary

Issues Involved:
1. Invocation of Section 263 by Pr. CIT (Central) and its legality.
2. Allowability of expenditure under Section 37(1) of the Act.
3. Requirement of incriminating material for additions under Section 153A.

Detailed Analysis:

1. Invocation of Section 263 by Pr. CIT (Central) and its legality:
The assessee challenged the revision order under Section 263 of the Act by the Pr. CIT (Central), arguing that the assessment order passed under Section 153A was neither erroneous nor prejudicial to the interest of the Revenue. The assessee contended that the assessment was unabated and no incriminating seized material was found concerning the proposed addition of ?35,79,213 for the shortage of material debited in the Profit & Loss account. The Tribunal examined whether the revision order satisfied the twin conditions of being erroneous and prejudicial to the interest of the Revenue. The Tribunal noted that the expenses towards the shortage of material were a regular business expenditure and had been accepted in earlier assessments. Moreover, the original assessment under Section 143(3) had already scrutinized these expenses, and no new incriminating material was found during the search to warrant a revision under Section 263.

2. Allowability of expenditure under Section 37(1) of the Act:
The assessee argued that the expenditure claimed in the Profit & Loss account for the shortage of material was allowable under Section 37(1) of the Act. The primary business of the assessee involved the transportation of iron ore and other minerals, where loss of material was inevitable due to loading and unloading processes. The Tribunal found merit in the assessee's argument, noting that such expenses were a normal part of the business operations and had been allowed in previous assessments. The Tribunal also observed that the Pr. CIT's presumption that these expenses were not allowable was not supported by any new evidence found during the search.

3. Requirement of incriminating material for additions under Section 153A:
The Tribunal emphasized that for an assessment under Section 153A to be revised or for additions to be made, there must be incriminating material found during the search. In the present case, no such material was found regarding the shortage of materials. The Tribunal referred to the decision in the case of Midas Capital Pvt. Ltd. Vs. ACIT, where it was held that in the absence of incriminating material, the power under Section 153A should not be exercised to make additions. The Tribunal concluded that since no incriminating material was found during the search, the revision order under Section 263 by the Pr. CIT could not be sustained.

Conclusion:
The Tribunal quashed the order under Section 263 of the Act passed by the Pr. CIT, noting that the conditions for invoking Section 263 were not met. The appeal of the assessee was allowed, and the Tribunal reiterated that the expenditure claimed for the shortage of materials was a normal business expense allowable under Section 37(1) and that no incriminating material was found during the search to justify the revision of the assessment.