2021 (3) TMI 1124 - AT - Income Tax

Assessment u/s 153A - Addition u/s 14A - CIT(A) has deleted the addition applying the ratio in the case of Kabul Chawal 2015 (9) TMI 80 - DELHI HIGH COURT that no addition could be made under 153A proceedings under absence of any incriminating material, in case of completed assessments - HELD THAT - As far as first condition is concerned, in the instant case addition under section 14A of the Act has been made and evidently there is no reference of any incriminating material in the assessment order, with regard to the addition under section 14A of the Act. Thus, there is no dispute that there was no incriminating material found during the course of the search relevant to the assessment year under consideration. Regarding the second condition, according to the Assessing Officer notice under section 148 of the Act for commencing reassessment proceeding was issued on 23/10/2013 and notice under section 153A was issued on 10/03/2015 and therefore assessment was pending in instant assessment year. However, the Ld. CIT(A) held that no proceedings were pending as on the date of the search and, therefore, notice under section 148 issued after the date of the search was avoid ab initio. As perused the Panchnama of search operation in the case of the locker in the joint name of the entity merged with the assessee and it is evident from said Panchanama that the search was conducted on 30/01/2013. Since the notice under section 148 was issued on 23/10/2013, which is after the date of the search, it is evident that as on the date of the search no assessment/ reassessment proceedings were pending in the instant assessment year. AO has wrongly considered the pendency of the assessment proceeding on the date of the issue of the notice under section 153A. In absence of no incriminating material found during the course of the search and no assessment/reassessment proceedings pending as on the date of the search, the ratio in the case of decision of the Hon ble Delhi High Court in the case of Kabul Chawal (supra) is squarely applicable on the facts of the case and accordingly, no addition could have been made in the instant assessment year. The addition made by the Assessing Officer has rightly been deleted by the Learned CIT(A), and we uphold the same.- Decided against revenue.

Summary

Issues Involved:
1. Validity of proceedings under Section 153A of the Income-tax Act.
2. Deletion of the addition made under Section 14A of the Act.
3. Validity of the assessment order passed under Section 153A/143(3) of the Act.

Issue-wise Detailed Analysis:

1. Validity of Proceedings under Section 153A:
The primary issue raised by the Revenue was whether the proceedings under Section 153A of the Income-tax Act were valid when no incriminating documents were found during the search and seizure operation, as per the decision in CIT Vs. Kabul Chawla. The assessee contended that no search was conducted on them directly, and they were merely joint owners of the searched lockers. The Ld. CIT(A) held that no assessment/reassessment proceedings were pending on the date of the search (30/01/2013), and thus, the notice under Section 148 issued after the search was void ab initio. The Tribunal upheld this view, confirming that no incriminating material was found and no proceedings were pending as of the search date, making the Section 153A proceedings invalid.

2. Deletion of Addition under Section 14A:
The Revenue challenged the deletion of the addition of ?3,84,01,375/- made by the AO under Section 14A. The Ld. CIT(A) deleted this addition, referencing the Kabul Chawla case, which states that no addition can be made under Section 153A without incriminating material when assessments are completed. The Tribunal confirmed that no incriminating material was found during the search related to the addition under Section 14A, and the assessment order did not reference any such material. Therefore, the deletion of the addition was upheld.

3. Validity of the Assessment Order under Section 153A/143(3):
The assessee's cross-objection challenged the validity of the assessment order under Section 153A/143(3), claiming it was void ab initio. The Tribunal, agreeing with the Ld. CIT(A), concluded that since no incriminating material was found and no proceedings were pending on the date of the search, the assessment order was invalid. The Tribunal reiterated that the assessment could only be made based on seized material, which was absent in this case.

Conclusion:
The Tribunal upheld the Ld. CIT(A)'s decision, confirming that no addition could be made under Section 153A in the absence of incriminating material and pending proceedings. Consequently, the Revenue's appeal was dismissed, and the assessee's cross-objections were rendered infructuous and dismissed. The judgment emphasized the necessity of incriminating material for additions under Section 153A and validated the application of the Kabul Chawla decision.