2019 (12) TMI 318 - AT - Income Tax

Reopening of completed assessment - powers of the Assessing Officer to reopen such assessment - time limit for issuance of notice and completion of assessment - addition on account of estimation of unaccounted profit - addition on account of disallowance of expenses - addition on account of unaccounted profit with different parties - addition on account of deemed dividend - addition on account of inflated purchases - addition on account of disallowance u/s 40A(3). HELD THAT - It is an admitted fact that the time limit for issue of notice u/s 143(2) and completion of the assessment has already been lapsed as on the date of the search - also, the additions made by the Assessing Officer is not based on incriminating material found during the course of search albeit is based on the other record not related to material found during the search. In such a situation, the additions made are beyond the scope of proceedings u/s 153A. This preposition of the law has been well settled by the jurisdictional High Court in the case of COMMISSIONER OF INCOME TAX (CENTRAL) -III VERSUS KABUL CHAWLA 2015 (9) TMI 80 - DELHI HIGH COURT where the Hon ble High Court clearly spelt that 153A additions have to be made only on the basis of the seized material. It was also held that completed assessments can be interfered with by the Assessing Officer while making assessment order u/s 153A only on the basis of some incriminating material found during the course of search or requisition of documents or undisclosed income or property discovered in course of search which were not produced or not already disclosed to the Revenue. Based on the facts that assessment has been made for the years in question is not based on any incriminating material found during the search, the order of the Ld. CIT(A) is upheld. Appeal dismissed - decided against Revenue.

Summary

Issues:
1. Interpretation of Section 153A of the IT Act regarding completed assessments and powers of Assessing Officer.
2. Deletion of additions on account of estimation of unaccounted profit.
3. Deletion of additions on account of disallowance of expenses.
4. Deletion of additions on account of unaccounted profit with different parties.
5. Deletion of additions on account of deemed dividend u/s 2(22)(e).
6. Deletion of additions on account of inflated purchases.
7. Deletion of additions on account of disallowance u/s 40A(3).

Analysis:
1. The primary issue in this case revolved around the interpretation of Section 153A of the IT Act concerning completed assessments and the powers of the Assessing Officer. The Revenue contended that the Assessing Officer could interfere with completed assessments without any incriminating material, contrary to the CIT(A)'s decision. The CIT(A) held that assessments under Section 153A must be based on seized materials, as per judicial precedents like CIT vs. Kabul Chawla and CIT vs. Meeta Gutgutia. The High Court rulings emphasized that assessments under Section 153A should only rely on incriminating material found during the search, and completed assessments cannot be disturbed without such material.

2. The CIT(A) deleted the addition of unaccounted profit based on the absence of incriminating material found during the search, which led to the conclusion that the Assessing Officer's additions were not sustainable. The decision was supported by legal precedents highlighting the necessity of incriminating material for making additions under Section 153A. The completion of assessments without such material rendered the additions invalid, as per the court rulings.

3. Similarly, the CIT(A) deleted the additions related to the estimation of unaccounted profit, disallowance of expenses, unaccounted profit with different parties, deemed dividend u/s 2(22)(e), inflated purchases, and disallowance u/s 40A(3) based on the same legal principles. The Assessing Officer's actions were deemed beyond the scope of Section 153A due to the lack of incriminating material and the completion of assessments before the search, leading to the dismissal of the Revenue's appeals.

4. The arguments presented by both parties centered on the applicability of Section 153A and the necessity of incriminating material for making additions during assessments. The legal analysis provided by the CIT(A) and the subsequent dismissal of the Revenue's appeals highlighted the importance of adhering to judicial precedents and statutory provisions while conducting assessments under the IT Act.

Conclusion:
The judgment emphasized the critical role of incriminating material in assessments under Section 153A of the IT Act and the limitations on the Assessing Officer's powers in the absence of such material. The decision underscored the need for assessments to be based on seized materials to ensure the validity and legality of any additions or deletions made during the assessment process.