2019 (6) TMI 390 - AT - Income Tax

Assessment proceedings u/s 153A/153C - absence of any incriminating material recovered during the search - HELD THAT - The assessment for the impugned assessment year was not pending on the date of recording of satisfaction by the AO and, therefore, would not abate by virtue of the second proviso to Section 153A and as held by the Courts that completed assessments can be interfered with by the AO while making the assessment u/s 153C only on the basis of some incriminating material unearthed during the course of search, therefore, in absence of any incriminating documents found during the course of search relating to unsecured loan and share application transaction with M/s Denim Developers Ltd and such transactions being duly recorded in the books of accounts, the additions made while passing the assessment order passed u/s 153C r/w 143(3) deserve to be deleted. - Decided in favour of assessee. We find that similar view has been taken by the Co-ordinate Bench in case of M/s Kota Dal Mill 2019 (1) TMI 344 - ITAT JAIPUR wherein the Co-ordinate Bench has considered and discussed at length various decisions laying the legal proposition that in absence of any incriminating material, no addition can be made in cases where the assessment has not got abated on the date of search. Validity of assessment order passed u/s 143(3) r.w.s. 153B (1)(b) on the ground that notice u/s 143(2) was not issued within the stipulated time - HELD THAT - Provisions of Section 292BB of the Act does not support the case of the Revenue as in the present case, the very issuance of notice u/s 143(2) is beyond the prescribed period of time whereas the section 292BB talks about the situations where the notice has either not been served upon the assessee or not been served in time or not have been served in a proper manner. In the present case, the matter is not about the service of the notice in time to the assessee rather the matter is very issuance of notice u/s 143(2) beyond the prescribed time period. Therefore, section 292BB cannot come to the rescue of the Revenue in the present case. In the entirety facts and circumstances, we are therefore of the considered view that since the notice u/s 143(2) has been issued beyond the prescribed limitation period, the entire proceedings suffer from the jurisdictional infirmity and deserve to be set aside. Ground no. 2 of assessee s cross-objection is thus allowed in favour of the assessee and against the Revenue.

Issues Involved:
1. Deletion of addition under Section 68 of the Income Tax Act.
2. Non-recording of legally required satisfaction by the Assessing Officer.
3. Validity of the assessment order passed under Section 153C read with Section 143(3).
4. Issuance of notice under Section 143(2) within the stipulated time period.

Detailed Analysis:

Issue 1: Deletion of Addition under Section 68 of the Income Tax Act
The Revenue challenged the deletion of an addition of ?1,40,69,990/- made by the Assessing Officer (AO) under Section 68 on account of unexplained share application money and unsecured loans from Denim Developers Ltd. The CIT(A) deleted the addition, observing that the AO relied on previous investigations without conducting independent inquiries, and no statement from the entry operator was quoted. The CIT(A) also noted that the Director or Principal Officer of Denim Developers Ltd. was never produced before the AO for examination, and the assessee had cooperated by showing willingness to produce the Director.

Issue 2: Non-recording of Legally Required Satisfaction by the Assessing Officer
The assessee argued that the order passed under Section 153C read with Section 143(3) was without jurisdiction as the legally required satisfaction was not recorded. However, this ground was not pressed during the hearing and was dismissed as not pressed.

Issue 3: Validity of the Assessment Order Passed under Section 153C Read with Section 143(3)
The assessee contended that the assessment for the year under consideration was not abated as of the date of search, and no addition could be made in the absence of incriminating material found during the search. The CIT(A) held that the additions were to be adjudicated on merits, and the issue remained for academic discussion only.

The Tribunal analyzed the legal position and found that the assessment for AY 2013-14 was not pending on the date of search, and the additions made by the AO were not based on any incriminating documents found during the search. The Tribunal noted that the AO made the additions based on a report from the Investigation Wing, which was not considered incriminating material unearthed during the search. Therefore, the additions made under Section 153C read with Section 143(3) were directed to be deleted.

Issue 4: Issuance of Notice under Section 143(2) within the Stipulated Time Period
For AY 2016-17, the assessee challenged the validity of the assessment order on the ground that the notice under Section 143(2) was not issued within the stipulated time. The Tribunal found that the notice was issued on 30.10.2017, beyond the prescribed limitation period, making the assessment order void ab initio. The Tribunal relied on the Supreme Court decision in Hotel Blue Moon and various High Court decisions, holding that the issuance of notice under Section 143(2) is mandatory, and any assessment order passed without such notice is null and void.

Conclusion:
The Tribunal allowed the assessee's cross-objections and dismissed the Revenue's appeals for all assessment years under consideration. The additions made by the AO were deleted, and the assessment orders were set aside due to jurisdictional infirmities and procedural lapses.

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