2019 (7) TMI 384 - AT - Income Tax

Validity of reopening of assessment u/s 147 - claim of deduction u/s 80 HHC - whether the reassessment is validly initiated or not ? - HELD THAT - Original assessment u/s 143 (3) of the act was passed on 29/3/2006 and notice u/s 148 of the income tax act has been issued on 18/11/2008. In the reasons recorded for the reopening of the assessment the learned assessing officer has no where stated that what is the failure on the part of the assessee to fully and truly disclose the material facts for the computation of the total income. In the reasons recorded itself, the learned assessing officer has stated that there is a mistake in calculation, which has resulted in over statement of export the purpose of calculation of deduction u/s 80 HHC of the income tax act.Therefore, it is apparent that the learned assessing officer himself in stating that it is a mistake and there is no escapement of income because of failure on the part of the assessee. Further, in the reasons recorded for reopening we did not find anything which shows that there is a tangible material coming into the possession of the learned assessing officer to reopen the assessment - in the original assessment proceedings it has been stated that the profit u/s 80 HHC of the income tax act was computed in the original assessment proceedings, which is also the subject matter of appeal before the 1st appellate authority. Therefore, it is apparent that it is merely a change of opinion on a particular aspect of the computation of deduction u/s 80 HHC - Reopening of the assessment proceedings initiated by the learned assessing officer is not sustainable in law. Assessment u/s 153A - scope of section 153A - Delhi High Court in case of CIT vs Kabul Chawla 2015 (9) TMI 80 - DELHI HIGH COURT has held that in such assessment u/s 153A in concluded assessment, the addition can be made only on the basis of incriminating material found during the course of search. The learned departmental representative could not show us any material found during the course of search based on which the additions/disallowances other than the computation of the claim of deduction u/s 80 HHC of the income tax act was made. In view of this, as the additions have been made without having any incriminating material found during the course of search, we reverse the order of the ld CIT (A) and direct the learned assessing officer to delete those additions/disallowances. - Decided in favour of assessee.

Issues Involved:
1. Legality of the assessment completed under section 143(3) read with section 153A of the Income-tax Act.
2. Legality of the search initiated under section 132 of the Income-tax Act.
3. Validity of reassessment proceedings under section 148 of the Income-tax Act.
4. Additions/disallowances made by the Assessing Officer (AO) without incriminating material found during the search.
5. Disallowance under section 40A(3) of the Income-tax Act.
6. Withdrawal of deduction under section 80HHC of the Income-tax Act.
7. Levy of interest under section 234A of the Income-tax Act.
8. Reference to special audit under section 142(2A) of the Income-tax Act.
9. Deduction under section 80IB(11A) of the Income-tax Act.

Issue-wise Detailed Analysis:

1. Legality of the Assessment Completed Under Section 143(3) Read with Section 153A:
The assessee contested the legality of the assessment completed under section 143(3) read with section 153A, arguing that the assessment was beyond jurisdiction and void ab initio. The Tribunal noted that the original assessment was completed under section 143(3) and that the reassessment proceedings were initiated under section 148. The Tribunal held that the reassessment proceedings were invalid as they were initiated beyond four years without any failure on the part of the assessee to disclose material facts. Consequently, the reassessment proceedings were quashed, and the Tribunal held that the assessment under section 153A could only be based on incriminating material found during the search.

2. Legality of the Search Initiated Under Section 132:
The assessee argued that the search initiated under section 132 was illegal and beyond the jurisdiction. However, the Tribunal did not find merit in this argument and upheld the validity of the search proceedings.

3. Validity of Reassessment Proceedings Under Section 148:
The Tribunal examined the reasons recorded for reopening the assessment under section 148 and found that the reassessment was based on a mere change of opinion and there was no tangible material to justify the reopening. The Tribunal also noted that the original assessment proceedings had already considered the issue of deduction under section 80HHC, which was the subject matter of the reassessment. Hence, the reassessment proceedings were held to be invalid.

4. Additions/Disallowances Made by the AO Without Incriminating Material Found During the Search:
The Tribunal emphasized that any additions or disallowances in the assessment under section 153A must be based on incriminating material found during the search. Since no such material was found, the Tribunal directed the AO to delete the additions/disallowances made without incriminating material.

5. Disallowance Under Section 40A(3):
The disallowance under section 40A(3) was contested by the assessee on the grounds that it was not based on any incriminating material found during the search. The Tribunal agreed with the assessee and directed the AO to delete the disallowance.

6. Withdrawal of Deduction Under Section 80HHC:
The Tribunal noted that the reassessment proceedings related to the excess deduction claimed under section 80HHC were invalid. Consequently, the Tribunal held that the deduction under section 80HHC could not be withdrawn in the absence of any incriminating material found during the search.

7. Levy of Interest Under Section 234A:
The assessee argued against the levy of interest under section 234A, stating that there was no default in filing the return of income. The Tribunal did not find merit in this argument and upheld the levy of interest under section 234A.

8. Reference to Special Audit Under Section 142(2A):
The assessee challenged the reference to special audit under section 142(2A), arguing that the special audit report was relied upon without proper appreciation of the details furnished by the assessee. The Tribunal noted that the additions based on the special audit report were not supported by any incriminating material found during the search and directed the AO to delete such additions.

9. Deduction Under Section 80IB(11A):
The revenue contested the allowance of deduction under section 80IB(11A) by the CIT(A). The Tribunal noted that the AO had made the disallowance without any incriminating material found during the search. Consequently, the Tribunal upheld the CIT(A)'s decision to allow the deduction under section 80IB(11A).

Conclusion:
The Tribunal allowed the appeals of the assessee for the assessment years 2003-04, 2004-05, and 2005-06, directing the AO to delete the additions/disallowances made without incriminating material found during the search. The appeals of the revenue were dismissed, and the reassessment proceedings under section 148 were quashed as invalid.

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