2019 (5) TMI 1156 - AT - Income Tax

Assessment u/s 153C - disallowance u/s 14A r.w.r. 8D - whether the AO could have made any addition de hors the material found during the course of the search in an assessment year which have not abated? - HELD THAT - Thus, as per judgment in the case of Kabul Chawla 2015 (9) TMI 80 - DELHI HIGH COURT , the existence of the seized material found during search is a must for making addition in those assessment years which have not abated. Although the judgment of the Hon ble Delhi High Court was rendered in a case falling u/s 153A, but essentially the provisions of sections 153A and 153C are identical and pari materia and the ratio of the judgment of the Hon ble Delhi High Court will apply equally to a case u/s 153C also. In the present case, it is an admitted fact that on the date of the search i.e. on 19th November, 2010 the assessment for the year under consideration was not pending. It is also an admitted fact that nothing incriminating was found during the course of the search which could be related to the disallowance made by the AO u/s 14A. The Assessment Order does not make any reference to any incriminating material found and seized during the course of search which could establish some kind of nexus with the 14A disallowance. in absence of any incriminating material being found during the course of the search, AO will be without jurisdiction in making such an addition. It is the incriminating material found during search which gives jurisdiction to the AO to make additions in the assessment proceedings in respect of assessments which have not abated. In the absence of incriminating material in such cases, as held in the case of Kabul Chawla (supra)the completed assessment is not to be disturbed. - Decided in favour of assessee.

Summary

Issues:
Confirmation of disallowance under section 14A of the Income Tax Act, 1961 read with Rule 8D.

Analysis:
The appeal was filed against the order of the Ld. Commissioner of Income Tax (Appeals) regarding the disallowance of ?18,78,416 under section 14A of the Income Tax Act, 1961. The case involved a search and seizure action under section 132 of the Act, leading to the issuance of a notice under section 153C for assessment years 2005-06 to 2010-11. The Assessing Officer disallowed ?23,08,347 under section 14A, out of which ?18,78,416 was added back to the assessee's income after allowing a deduction of ?4,29,931 self-disallowed by the assessee. The assessee challenged the invocation of section 153C and the disallowance under section 14A before the Ld. Commissioner of Income Tax (Appeals) but was unsuccessful.

The assessee raised multiple grounds of appeal before the Tribunal, questioning the legality of the order passed by the Ld. CIT (A) and the disallowance made under section 14A. The Authorized Representative argued that the disallowance did not relate to any material found during the search and relied on the judgment of the Hon'ble Delhi High Court in the case of Pr. C.I.T. vs. Kabul Chawla. The AR contended that without incriminating material, no addition under section 153A/153C could be made. The CIT DR, on the other hand, argued in favor of upholding the disallowance, emphasizing the Assessing Officer's jurisdiction under section 153C.

The Tribunal analyzed the legal position as summarized in the judgment of Kabul Chawla by the Hon'ble Delhi High Court, emphasizing the necessity of incriminating material for making additions in assessment years not abated. The Tribunal held that since no incriminating material was found during the search related to the disallowance under section 14A, the AO lacked jurisdiction to make such an addition. Citing the importance of seized material, the Tribunal directed the AO to delete the addition made in the assessment year under consideration. As the issue was decided in favor of the assessee on legal grounds, the other raised grounds were not adjudicated upon.

In conclusion, the Tribunal allowed the appeal of the assessee, emphasizing the requirement of incriminating material for jurisdiction under section 153C and directing the deletion of the disallowance under section 14A due to the absence of such material.