2021 (1) TMI 885 - AT - Income Tax

Validity of the notice under Section 153A - Proof of incriminating material found in search - HELD THAT - As in CIT Vs. Kabul Chawla 2015 (9) TMI 80 - DELHI HIGH COURT has held 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 un-earthed during the course of search or recovery 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. Addition of advertisement expenses - There is only reference to some post-search investigation and assessee was asked to furnish the details of advertisement expenses, which was furnished. However, the address and PAN of the parties were not provided and, therefore, these expenses were held to be bogus and disallowed by the ld. Assessing Officer. We do not find any reference to any material, which is incriminating in nature found during the course of search, which has been used by the ld. AO for making this disallowance. Disallowance under Section 14A - As noted that assessee has made an investment of ₹ 119 crores during the year and, therefore, he made the disallowance under that section. In that case, also we do not find any reference to any incriminating material found during the course of search. In view of this, we find that both the disallowances in appeal before us are made by the ld. Assessing Officer without any incriminating material found during the course of search.DR could not show that any of these additions/disallowances are made on the basis of incriminating material found during the course of search. - Decided in favour of assessee.

Summary

Issues:
1. Remand of appeals to the co-ordinate bench by the High Court.
2. Validity of notice under Section 153A of the Income Tax Act.
3. Deletion of addition of unexplained advertisement expenses.
4. Disallowance under Section 14A.
5. Legal grounds raised by the assessee regarding additions made under Section 153A.
6. Assessment for AY 2009-10.
7. Assessment for AY 2010-11.

Issue 1 - Remand of appeals to the co-ordinate bench by the High Court:
The High Court remanded two appeals for Assessment Years 2009-10 and 2010-11 back to the co-ordinate bench, directing it to decide the appeals and cross objections on its own. The appeals were initially decided by the co-ordinate bench, challenged by the assessee, and subsequently restored by the High Court for further consideration.

Issue 2 - Validity of notice under Section 153A of the Income Tax Act:
The main grievance of the assessee was regarding the validity of the notice under Section 153A of the Income Tax Act, 1961. The High Court framed a question of law on whether the ITAT was justified in remanding the assessment back to the CIT (Appeals) for the assessment years in question. The High Court set aside the previous order and directed the Tribunal to proceed and decide the appeals and cross objections.

Issue 3 - Deletion of addition of unexplained advertisement expenses:
The assessee raised grievances related to the deletion of addition of unexplained advertisement expenses for Assessment Year 2009-10, which were initially disallowed by the Assessing Officer but deleted by the CIT (Appeals). The High Court emphasized that additions should be based on incriminating material found during the search, which was not the case here.

Issue 4 - Disallowance under Section 14A:
Another grievance was the disallowance under Section 14A, where the Assessing Officer made substantial disallowances, which were subsequently reduced or deleted by the CIT (Appeals). The High Court highlighted the need for disallowances to be supported by incriminating material found during the search, which was lacking in this case.

Issue 5 - Legal grounds raised by the assessee regarding additions made under Section 153A:
The assessee raised legal grounds challenging the additions made under Section 153A of the Act, arguing that they were illegal as they were not based on incriminating material found during the search. The High Court directed the co-ordinate bench to decide this issue along with the appeals and cross objections.

Issue 6 - Assessment for AY 2009-10:
The assessment for AY 2009-10 involved various disallowances and additions, including unexplained advertisement expenses and disallowance under Section 14A. The High Court emphasized the requirement for incriminating material to support such additions, which was absent in this case.

Issue 7 - Assessment for AY 2010-11:
Similarly, the assessment for AY 2010-11 raised similar issues of unexplained advertisement expenses and disallowance under Section 14A. The High Court reiterated the necessity for incriminating material to justify these disallowances, which was not present in this case.

In conclusion, the High Court's judgment focused on the importance of incriminating material to support additions and disallowances made during assessments under Section 153A of the Income Tax Act. The Tribunal was directed to reconsider the appeals and cross objections in light of this requirement, emphasizing the need for a legal basis for such actions.