2020 (4) TMI 225 - AT - Income Tax

Proceedings u/s 153A - Exemption u/s.54B denied - Whether incriminating material during search or not? - HELD THAT - On verification of the detail filed by the assessee, the assessing officer observed that a payment to the amount for ₹ 7 lacs towards purchase of new asset was made before the date of transfer of existing capital asset. The assessee has filed return of income u/s. 153A of the act to the amount of ₹ 14,75,110/- and the same income was declared in the original return of income filed u/s. 139(1) of the act on 27th October, 2010. It is clearly demonstrated from the finding of the assessing officer that as per the return of income the assessee has shown long term capital gain from sale of land against which the assessee has claimed exemption u/s. 54B - It is also clear from the findings of the lower authorities on verification of the submission of the assessee made during the course of assessment proceedings, the assessing officer has noticed that payment of ₹ 7 lacs was made for purchasing of new assets before the date of transfer of capital asset. It is clearly established from the finding of the assessing officer reported in the assessment order that impugned addition was not made on the basis of any incriminating material found during the course of search. After considering the judicial pronouncement referred in the case of Saumya Consturction Pvt. Ltd. 2016 (7) TMI 911 - GUJARAT HIGH COURT wherein it is held that if no incriminating material during search found no addition can be made on the basis of material collected after search. In the light above facts and decision of Jurisdictional High Court as cited above, we consider that assessing officer has disallowed the claim of deduction to the extent of ₹ 7 lacs on the basis of submission made by the assessee during the course of assessment proceedings and same was not based on any incriminating material, therefore, the impugned addition was bad in law. - Decided in favour of assessee.

Summary

Issues Involved:
1. Disallowance of exemption claimed under section 54B of the Income Tax Act, 1961.
2. Admissibility of additional ground of appeal filed by the assessee.

Issue 1: Disallowance of exemption claimed under section 54B:
The case involved an appeal by the assessee against the order of the CIT(A)-12, Ahmedabad regarding the disallowance of exemption claimed under section 54B of the Income Tax Act, 1961. The assessee had claimed exemption of ?7,00,000 under section 54B for the purchase of new capital asset before the date of transfer of the original capital asset. The assessing officer disallowed this claim, stating that section 54B requires the purchase of a new asset within two years after the date of transfer of the original asset and investment made before the date of transfer cannot be allowed as exemption. The assessing officer differentiated between sections 54, 54F, and 54B, highlighting that while the former two allow investments before or after the date of transfer, section 54B does not mention such a provision. The CIT(A) dismissed the appeal of the assessee.

Issue 2: Admissibility of additional ground of appeal:
The assessee filed an additional ground of appeal, contending that no incriminating material was found during the search proceedings, and therefore, the disallowance under section 54B could not be made without such material. The ITAT admitted this additional ground of appeal, citing the Supreme Court's observation in NTPC Vs. CIT that issues affecting the taxability of the assessee could be raised even before the second appellate authority. The ITAT proceeded to adjudicate the additional ground of appeal based on the contention that the assessing officer's disallowance of the claim under section 54B was not supported by any incriminating material found during the search. Relying on a decision of the Jurisdictional High Court, the ITAT held that without incriminating material, no addition could be made based on post-search material. Consequently, the ITAT allowed the appeal of the assessee, quashing the disallowance of ?7,00,000 made by the assessing officer.

In conclusion, the ITAT, comprising Shri Sandeep Gosain, Judicial Member, and Shri Amarjit Singh, Accountant Member, allowed the assessee's appeal, holding that the disallowance of exemption under section 54B was not supported by any incriminating material found during the search proceedings. The ITAT emphasized the requirement of incriminating material for making additions post-search and ruled in favor of the assessee, thereby allowing the appeal and quashing the disallowance of ?7,00,000.