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2022 (2) TMI 38 - AT - Income TaxAssessment u/s 153C - Whether no nexus with the alleged material unearthed during the course of search operation? - HELD THAT - The original assessment was framed vide order dated 13.12.2010 wherein short term capital gain was accepted as such. Therefore, in our considered opinion, in the assessment order framed u/s 153C of the Act, there has to be direct nexus between incriminating material found during the course of search qua the addition, devoid of which, the ratio laid down by the Hon'ble Jurisdictional High Court in the case of Kabul Chawla 2015 (9) TMI 80 - DELHI HIGH COURT and Meeta Gutgutia 2017 (5) TMI 1224 - DELHI HIGH COURT squarely apply. Coming to the facts of Assessment Year 2009-10, we find that the assessee has returned short term capital loss on forfeiture of convertible share warrants which was accepted as such by order framed u/s 143(1) of the Act. However, in the order framed u/s 153C of the Act, the same was disallowed. A perusal of the assessment order clearly shows that there is no nexus between the addition made in the assessment order and in the incriminating material found at the time of search - we do not find any merit in the addition made in Assessment Year 2009-10. - Decided in favour of assessee.
Issues:
1. Common grievance regarding addition/disallowance made under section 153C of the Income-tax Act, 1961. 2. Assessment Year 2008-09: Short term capital gain assessed as business income without nexus to incriminating material. 3. Assessment Year 2009-10: Disallowance of short term capital loss without nexus to incriminating material, reliance on findings of group company. Analysis: The judgment by the Appellate Tribunal ITAT Delhi involved appeals against a common order of the ld. CIT(A) for Assessment Years 2008-09 and 2009-10. The primary issue in both appeals was the addition/disallowance made under section 153C of the Income-tax Act, 1961, without a direct nexus to the incriminating material found during the search operation. The Tribunal emphasized the importance of establishing a clear connection between the incriminating material and the additions/disallowances made, citing the precedents set by the Hon'ble Jurisdictional High Court. In the assessment for the year 2008-09, the Assessing Officer had assessed a short term capital gain as business income without any reference to incriminating material found during the search. The Tribunal highlighted the necessity of a direct nexus between the incriminating material and the addition made under section 153C of the Act, as per established legal principles laid down by the High Court. The Tribunal referred to specific cases to support its decision, emphasizing the need for a clear link between the material found and the assessment. Moving on to the assessment for the year 2009-10, the Tribunal noted that the disallowance of short term capital loss lacked a connection to the incriminating material discovered during the search. The Assessing Officer had heavily relied on findings from a group company, which the Tribunal found unsubstantiated. Referring to a previous Tribunal order and subsequent High Court judgment, the Tribunal concluded that the disallowance was unjustified based on legal interpretations and precedents. Based on the detailed analysis of both assessment years and the lack of nexus between the additions/disallowances and the incriminating material, the Tribunal quashed both assessment orders. Additionally, the Tribunal deleted the additions made in the assessment for the year 2009-10, considering the legal precedents and lack of merit in the disallowance. Ultimately, the appeals of the assessee were allowed, and the orders were pronounced in the presence of the representatives, providing a comprehensive resolution to the issues raised in the appeals.
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