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2020 (10) TMI 86 - AT - Income TaxAssessment u/s 153C - Addition based on some incriminating material found during the course of search or not? - disallowance on account of additional payment and disallowance u/s 40A(3) - HELD THAT - When an assessment is initiated u/s 153C of the Act it is necessary that already assessed income can be tempered only when there is some incriminating material which has a capacity of upward assessment of already assessed income. Such is the mandate of the decision of CIT Vs Sinhgadh Technical Education Society 2017 (8) TMI 1298 - SUPREME COURT as well CIT Vs. Kabul Chawla 2015 (9) TMI 80 - DELHI HIGH COURT . Addition on account of disallowance of additional payment is made without any incriminating material found during the course of search. Same is the case of disallowance u/s 40A(3) - Decided in favour of assessee. Whether the assessment order should have been passed by AO u/s 153C on it has been correctly passed by the assessing officer u/s 143 (3) of the act? - Admittedly, no notice u/s 153C of the Act was issued to the assessee for this assessment year. Instead notice u/s 143(2) of the Act was issued and assessment order was passed u/s 143(3) of the Act. Therefore merely mentioning that order as been passed u/s 153A of that without issuing any notice u/s 153C of the act we are not in a position to hold that the learned assessing officer has passed the assessment order u/s 153A of the act. - Decided in favour of assessee.
Issues Involved:
1. Validity of the assumption of jurisdiction by the Assessing Officer (AO) under Section 153C of the Income Tax Act. 2. Legality of additions made based on seized documents. 3. Disallowance of additional payments and payments made in cash under Section 40A(3) of the Income Tax Act. 4. Whether the assessment order should have been passed under Section 153C or Section 143(3) of the Income Tax Act. Detailed Analysis: 1. Validity of the Assumption of Jurisdiction by the AO under Section 153C: The assessee challenged the assumption of jurisdiction by the AO for making the assessment under Section 153C, arguing that it was bad in law as no satisfaction was recorded in the file of the searched person (BPTP Ltd). The CIT(A) rejected this contention, stating that since BPTP Ltd and the assessee were assessed by the same AO, recording satisfaction in the file of the searched person was unnecessary. The Tribunal admitted the additional ground raised by the assessee, which argued that the assumption of jurisdiction was invalid due to the lack of recorded satisfaction in the searched person's file. 2. Legality of Additions Made Based on Seized Documents: The assessee contended that the additions made were not based on any incriminating material found during the search. The AO had made additions on account of interest on PDCs, additional payments, deemed dividends, and disallowance under Section 40A(3). The Tribunal found that the additions were not based on any incriminating material found during the search, as required under Section 153C. The Tribunal referenced the decisions of the Hon'ble Supreme Court in CIT Vs. Sinhgadh Technical Education Society and the Hon'ble Delhi High Court in CIT Vs. Kabul Chawla, which mandate that additions under Section 153C must be based on incriminating material found during the search. 3. Disallowance of Additional Payments and Payments Made in Cash under Section 40A(3): The Tribunal noted that the disallowances made by the AO were not based on any incriminating material found during the search. The AO had repeated the additions made in the assessment order under Section 143(3), which were not based on any new incriminating evidence. Therefore, the Tribunal directed the AO to delete the disallowances, allowing the assessee's appeal on these grounds. 4. Whether the Assessment Order Should Have Been Passed under Section 153C or Section 143(3): For AY 2008-09, the assessee argued that the assessment order should have been passed under Section 153C, as incriminating documents were found during the search on BPTP Ltd. The AO had issued a notice under Section 143(2) and passed the assessment order under Section 143(3). The Tribunal found that since the satisfaction note was recorded on 26.08.2009, the assessment should have been made under Section 153C for AY 2008-09. The Tribunal quashed the assessment order passed under Section 143(3), allowing the assessee's appeal. Conclusion: The Tribunal allowed the assessee's appeals for AY 2006-07 and AY 2008-09, quashing the assessment orders and directing the deletion of disallowances made without any incriminating material found during the search. The Tribunal emphasized the necessity of basing additions under Section 153C on incriminating material found during the search, in line with judicial precedents.
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