2021 (7) TMI 1243 - AT - Income Tax

Assessment u/s 143 r.w.s 153A - Period of limitation - Exclusion of certain period - The assessee had filed a writ petition in the Hon ble Allahabad High Court against the direction of Pr. CIT under section 142(2A) of the Act. This fact was communicated by the Assessee to the Auditor with a request to withhold the audit till the decision of the Court. - HELD THAT - We find merit in the submission of the Assessee that as per the provisions of Section 142(2A) of the I.T. Act, 1961, the time period of 90 days plus further extension of 60 days expired on 21.08.2016. Whereas, the A.O. in the instant case has passed the assessment order on 28.10.2016 and, therefore, the order passed by the A.O. is barred by limitation. Finding given by the Ld. CIT(A) that in view of provisions of Section 153B read with Explanation- (b) the time period starting with the date of filing of the writ petition and ending on the date of disposal of the writ petition is to be excluded is concerned, we do not find any merit in the same. Admittedly, the assessment proceedings have not been stayed by an order or injunction of any Court which fact was also brought on record by the A.O. himself at para-7 of the assessment order. Further, although such direction was challenged before the Hon ble High Court, however, no order setting aside such direction has been received by Pr. CIT or CIT which is to be excluded. CIT(A) has gone wrong by invoking the provisions of Explanation-(b) to Section-153B. We, therefore, set aside the order of the Ld. CIT(A) and quash the assessment order passed by the A.O. being barred by limitation. - Decided in favor of assessee.

Summary

Issues Involved:
1. Validity of assessment proceedings under section 153A of the Income Tax Act, 1961.
2. Limitation period for completion of assessment under section 153B.
3. Estimation of net profit rate by the Assessing Officer (A.O.).
4. Validity of additions made in the absence of incriminating material.

Detailed Analysis:

1. Validity of Assessment Proceedings under Section 153A:
The assessee challenged the validity of the assessment proceedings initiated under section 153A, arguing that the proceedings were void ab initio as the appellant could not be treated as the "person in whose case search and seizure action under section 132(1) had been initiated." The Tribunal examined the facts and circumstances and found that the assessment proceedings were initiated correctly under section 153A following a search and seizure operation conducted on 12.11.2013.

2. Limitation Period for Completion of Assessment under Section 153B:
The assessee argued that the assessment order dated 28.10.2016 was barred by limitation. The Tribunal noted that the direction for a special audit under section 142(2A) was communicated to the assessee on 29.03.2016, and the period of 90 days plus an extension of 60 days expired on 21.08.2016. The Tribunal found that the assessment order was passed beyond this period, making it barred by limitation. The Tribunal rejected the CIT(A)'s interpretation that the period from the filing of the writ petition to its disposal should be excluded, as there was no stay from the High Court on the assessment proceedings.

3. Estimation of Net Profit Rate by the A.O.:
The A.O. estimated the net profit rate at 15% of the turnover, which was later reduced to 8% by the CIT(A). The Tribunal observed that the A.O. did not provide any comparable cases to justify the 15% rate and that the CIT(A) reduced it to 8% based on the legislative intention in section 44AD of the Act. The Tribunal found merit in the assessee's argument that the estimation was arbitrary and not based on any incriminating material found during the search.

4. Validity of Additions Made in the Absence of Incriminating Material:
The assessee contended that no incriminating material was found during the search, and therefore, the A.O. was not justified in making additions based on an estimated net profit rate. The Tribunal agreed with this argument, noting that the addition was not based on any incriminating material and was merely an estimate by the A.O.

Conclusion:
The Tribunal quashed the assessment orders for being barred by limitation and found that the additions made by the A.O. were not justified in the absence of incriminating material. All appeals filed by the assessee were allowed.

Order:
The appeals of the assessee for the assessment years 2008-2009 and 2010-2011 to 2013-2014 were allowed, and the assessment orders were quashed for being barred by limitation. The Tribunal did not adjudicate on the other grounds challenging the validity of additions due to the academic nature of the issue.