2019 (11) TMI 997 - AT - Income Tax

Assessment u/s 153A - Validity of search u/s 132 - HELD THAT - In pursuance of warrant of authorization issued by DIT(Inv.), Patna and Addl. DIT(Inv.), Ranchi, a search and seizure operation was carried out on 03.07.2014 at the business premises of the appellant-assessee situated at Joda, Banaikela, Barbil, Orissa. Accordingly, the CIT(A) rejected the plea of the assessee that no search was carried out in the case of the assessee. In our opinion, this issue must have been raised by the assessee before the constitutional bench. In the present case, we also noted that this issue has not been raised before the AO. However, when raised before the CIT(A), the CIT(A) on receiving remand report from the AO confirmed that the search was duly conducted in the premises of the assessee. So far as our considered opinion, the Tribunal has no power to hear the validity of search. In the totality of facts and circumstances of the case, we decline to accept the ground No.1 taken by the assessee regarding validity of search proceedings. Therefore, this ground of appeal is dismissed. Assessee has not received notice u/s.143(2) at his registered office or place of search - HELD THAT - It is clear from the above observations of the CIT(A) that there was no mandatory to issue notice u/s.143(2) of the Act and served to the assessee for completion of assessment u/s.153A of the Act. The provisions of Section 153A of the Act is a special provision to unearth the escaped income by the assessee. Ld.CIT(A) has decided this issue after relying on the various judgments as quoted by him, which are applicable in the present case also. The ld AR was also unable to controvert the findings recorded by the CIT(A) in this regard. He just submitted that issuance of notice u/s.143(2) of the Act is mandatory for assuming jurisdiction for completion of assessment. It is also settled position of law that there is no mandatory requirement of issuance of notice under section 143(2) of the Act in respect of assessment proceedings u/s.153A of the Act as decided in TARSEM SINGLA VERSUS DEPUTY COMMISSIONER OF INCOME-TAX 2016 (7) TMI 703 - PUNJAB AND HARYANA HIGH COURT .Thus issuance of notice under section 143(2) of the Act in respect of assessment proceedings u/s.153A Assessment u/s 153A - Assessee has contested that during the course of search no any incriminating material/document whatsoever was found relating to the assessee - HELD THAT - In the instant case, on perusal of the assessment order, it was noticed that the AO has not disallowed any specific amount of expenses on account of any incriminating materials found at the time of search. It is pertinent to note that the assessee had filed the return of income on the basis of audited trading profit and loss account and balance sheet. AO has made addition only on the basis of tax evasion petition filed by somebody else. Copy of the tax evasion petition is placed on record at page Nos.102 to 107. It is pertinent to mention here that completed assessments can be interfered with by the Assessing Officer while making the assessment under section 153A of the Act only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment. In the case in hand, the AO has not referred to any incriminating material found during the course of search while framing the assessment. Section 153 A of the Act, 1961 provides for the scheme of assessment of income in case of a searched person. Assessing Officer, while framing assessment under section 153A of the Act cannot make the addition/disallowance dehors any incriminating material. No reasonable opportunity of hearing provided to assessee - Assessment years 2013-2014 to 2015-2016 - HELD THAT - The search was conducted on 3rd July, 2014 and for selection of scrutiny u/s.143(2) of the Act was not expired on the date of search, therefore, this year s assessment would be completed as a regular assessment u/s.143(3) of the Act. The ld. AR of the assessee was also unable to controvert that on the date of search, the assessment for the impugned year has been completed. Our this view is supported by plethora of judicial decisions. Accordingly, on perusal of the assessment order and considering the request of the ld. AR of the assessee, to which ld. DR has not objected, we are of the considered opinion that the assessee in this case was deprived of reasonable opportunity of hearing. Therefore, we remit the matter back to the file of AO for making de novo assessment after depth examination as per provisions of Income Tax Act, 1961 after providing reasonable opportunity of being heard to the assessee. The assessee is also directed to cooperate with the department for early disposal of the case and also directed to not to seek any adjournments because the assessee has been given many opportunities of being heard by the AO during the original assessment proceeding. Thus, the grounds of appeal of the assessee for A.Y.2013-2014 are allowed for statistical purposes.

Summary

Issues Involved:
1. Validity of Search Proceedings
2. Non-receipt of Notice under Section 143(2)
3. Additions Without Incriminating Material
4. Additions under Section 68 for Sundry Creditors
5. Additions under Section 2(22)(e) for Deemed Dividend
6. Addition for Difference in Turnover
7. Addition for Deemed Rental Income
8. Disallowance of Expenses
9. Interest under Sections 234A and 234B

Issue-wise Analysis:

1. Validity of Search Proceedings:
The assessee argued that the search operation was only carried out at their transit office in Orissa, whereas they resided in Himachal Pradesh, and no document or paper relating to them was found. The Tribunal dismissed this ground, stating that the issue was not raised before the Assessing Officer (AO) and confirmed by the Commissioner of Income Tax (Appeals) [CIT(A)] that a search was conducted at the business premises.

2. Non-receipt of Notice under Section 143(2):
The assessee contended that no notice under Section 143(2) was received. The Tribunal upheld the CIT(A)’s decision, which relied on the Supreme Court's ruling in ITO, Etawah Vs. Dharam Narain, stating that the appearance of the assessee’s authorized representative implied deemed service of notice. The Tribunal also referred to Section 292BB, which precludes the assessee from challenging the notice if they participated in the proceedings.

3. Additions Without Incriminating Material:
The Tribunal found that the AO made additions without referring to any incriminating material found during the search. It cited multiple judicial precedents, including the Delhi High Court's decision in Kabul Chawla, which held that additions in assessments under Section 153A can only be made based on incriminating material found during the search. Consequently, the Tribunal quashed the assessments for AYs 2009-2010 to 2012-2013, as they were unabated and no incriminating material was found.

4. Additions under Section 68 for Sundry Creditors:
The AO added ?59,25,209 as unexplained sundry creditors. The Tribunal noted that the amount included opening balances and regular business transactions, with no incriminating material found during the search. The Tribunal ruled the addition as unjustified and fit to be deleted.

5. Additions under Section 2(22)(e) for Deemed Dividend:
The AO added ?7,61,05,543 as deemed dividend for credit balances in two companies. The Tribunal found no incriminating material supporting this addition and noted that the transactions included salaries, TDS, and business loans. The Tribunal deemed the addition as illegal and fit to be deleted.

6. Addition for Difference in Turnover:
The AO added ?27,85,952 for a discrepancy between turnover figures in Form 26AS and audited accounts. The Tribunal observed that the difference was due to consolidated amounts in Form 26AS, including interest and statutory duties, which were separately accounted for in the books. With no incriminating material found, the Tribunal ruled the addition as fit to be deleted.

7. Addition for Deemed Rental Income:
The AO added ?52,000 as deemed rental income. The Tribunal noted that the property was used as a transit office, as evidenced by the panchnama. With no incriminating material supporting the addition, the Tribunal deemed it fit to be deleted.

8. Disallowance of Expenses:
The AO disallowed ?98,88,221 in expenses, claiming they were bogus. The Tribunal found no incriminating material supporting the disallowance and noted that the AO did not provide the assessee an opportunity to counter the claims during remand proceedings. The Tribunal ruled the disallowance as unjustified and fit to be deleted.

9. Interest under Sections 234A and 234B:
The Tribunal did not specifically address this issue in detail, but the general principle is that interest should be charged on the returned income, not on the assessed income.

Separate Judgments:
The Tribunal issued a consolidated order for both assessees, Shri Kamal Deo Sharma and Smt. Tripta Sharma, and the revenue’s appeals. The Tribunal allowed the assessee's appeals partly for AYs 2009-2010 to 2012-2013 and remitted the matters back to the AO for AYs 2013-2014 to 2015-2016 for de novo assessment. The revenue's appeals were dismissed as they became infructuous following the quashing of the assessment orders.