2020 (5) TMI 624 - AT - Income Tax

Assessment u/s 153A - reliance is placed on the incriminating material found during the course of search of third-part - HELD THAT - As perused copy of the Panchnama through which the documents in dispute was seized. On perusal of the Panchnama, we find that the Panchnama is not containing the name of the assessee. Therefore, it is evident that the material relied upon for making the impugned addition was not found from the premises of the assessee. during relevant period, for using any material found from the premises of the third party during the course of the search in the assessment proceedings of the assessee, the Assessing Officer of the third party was required to record satisfaction as the material belonging to the assessee in terms of section 153C of the Act and was then required to proceed as per the provisions of section 153C of the Act. In the instant case, it is evident that addition in dispute has been made in the assessment completed under section 153A of the Act. Assessing Officer is required to follow the procedure laid down in the Act for making the assessment and he cannot devise his own procedure. In our considered opinion, when the case of the assessee is covered under the provision of section 153 of the Act and if reliance is placed on the incriminating material found during the course of search of third-party, then provisions of section 153C of the Act would be applicable and have to be adhered to. Hon ble Delhi High Court in the case of Pr. CIT vs. Meeta Gutgutia 2017 (5) TMI 1224 - DELHI HIGH COURT has held that the invocation of section 153A to re-open concluded assessments of assessment years earlier to year of search was not justified in absence of incriminating material found during search qua each such earlier assessment year. Also confirmed by SC 2018 (7) TMI 569 - SC ORDER Apparently, in the present case, no incriminating material was found qua the assessment year in question. Therefore, the assessment framed by the Assessing Officer in violation of the procedure provided in the Act is bad in law and void ab initio and cannot be sustained. - Decided in favour of assessee.

Summary

Issues:
- Disallowance of legal and professional expenses
- Allowance of losses on sale of shares
- Validity of transactions relating to sale of shares
- Assessment made without incriminating material
- Jurisdiction under section 153A of the Income Tax Act
- Compliance with section 153C of the Act
- Quashing of assessment and cross objection

Analysis:
1. Disallowance of Legal and Professional Expenses: The Department challenged the deletion of the addition of ?2,78,43,961 made on account of disallowance of legal and professional expenses by the Ld. CIT (A). The Department raised the issue of whether the deletion was justified. The Ld. CIT (A) held in favor of the assessee, allowing the expenses and considering them legitimate.

2. Allowance of Losses on Sale of Shares: The Department contested the allowance of losses amounting to ?7,03,15,125 on the sale of shares of M/s Blue Wing Tours & Travels (P) Ltd. The Ld. CIT (A) deemed the transactions genuine and ruled in favor of the assessee. The Department questioned the authenticity of these transactions.

3. Validity of Transactions Relating to Sale of Shares: The Department raised concerns regarding the authenticity of the transactions involving the sale of shares of M/s Costal Power Projects (P) Ltd. The Ld. CIT (A) upheld the transactions as real and related to the assessee company. The Department challenged this decision.

4. Assessment Made Without Incriminating Material: The assessee contended that the assessment was conducted without any incriminating material found during the search. The Cross Objection filed by the assessee challenged the foundation of the assessment, arguing that it lacked jurisdiction under section 153A of the Income Tax Act.

5. Jurisdiction under Section 153A of the Income Tax Act: The debate centered on the jurisdiction under section 153A of the Act for conducting the assessment. The Ld. AR argued that the assessment was made without any incriminating material found during the search, questioning the validity of the assessment under section 153A.

6. Compliance with Section 153C of the Act: The discussion also revolved around compliance with section 153C of the Act, which deals with material found in the search of a third party. The Tribunal emphasized the necessity of following the correct procedure under the Act when utilizing material found during a search.

7. Quashing of Assessment and Cross Objection: After thorough analysis, the Tribunal concluded that the assessment was invalid as it was conducted without incriminating material and in violation of the procedure provided in the Act. Citing judicial precedents, the Tribunal quashed the assessment order and allowed the Cross Objection of the assessee, thereby dismissing the Department's appeal as in fructuous.