2022 (9) TMI 302 - AT - Income Tax

Validity of assessment framed u/s.153C - certain disallowances and additions without the existence of incriminating material for the year under consideration received from the AO of the searched person - HELD THAT - None of the additions that were made by the ld. AO were based on reliance placed on search materials received from the AO of the searched person. We hold that assessment for A.Y.2008-09 had originally been completed u/s.143(3) - Later, the first re-assessment was framed in the hands of the assessee for A.Y.2008-09 u/s.143(3) r.w.s. 147. Notice u/s.153C of the Act was issued to the assessee only on 26/11/2014. Hence, on the said date i.e. 26/11/2014, no proceedings of the assessee were pending. We hold that A.Y.2008-09 becomes an unabated / concluded assessment on the date of assumption of jurisdiction u/s.153C - The law is very well settled that in respect of concluded assessments, the earlier assessment completed should not be disturbed in the search assessments without existence of any incriminating material relatable to such assessment year. We direct the AO to re-compute the total income of the assessee by accepting the income declared in the return filed in response to notice u/s.153C of the Act without making any additions or disallowance thereon, both under ormal provisions of the Act as well as in the computation of book profits u/s 115JB - We categorically hold that no additions / disallowance could be made in the search assessment u/s.153C - Appeal of assessee allowed.

Summary

Issues Involved:
1. Validity of proceedings initiated under Section 153C read with Section 153A of the Income Tax Act.
2. Re-examination of issues/claims finalized under Section 143(3).
3. Consideration of incriminating material for additions/disallowances.
4. Addition on account of alleged illegal mining.
5. Inclusion of royalty in the valuation of closing stock.
6. Impact of non-reporting of sub-grade production on successive assessment years.

Issue-wise Detailed Analysis:

1. Validity of Proceedings Initiated Under Section 153C:
The assessee challenged the validity of the assessment framed under Section 153C for the A.Y. 2008-09, arguing that the proceedings were initiated without the existence of incriminating material. The Tribunal found that the assessment was originally completed under Section 143(3) and later reassessed under Section 143(3) read with Section 147. The notice under Section 153C was issued based on documents seized from another entity, but the Tribunal concluded that none of the additions made were based on these seized materials. Therefore, the proceedings under Section 153C were not validly initiated.

2. Re-examination of Issues/Claims Finalized Under Section 143(3):
The assessee contended that the re-examination of issues already finalized under Section 143(3) was beyond the scope of Section 153C. The Tribunal agreed, noting that the assessment for A.Y. 2008-09 was a concluded assessment and could not be disturbed without incriminating material. The Tribunal cited the decision of the Hon'ble Jurisdictional High Court in Continental Warehousing Corporation and the Hon'ble Calcutta High Court in CIT vs. Veer Prabhu Marketing Ltd., which support this view.

3. Consideration of Incriminating Material for Additions/Disallowances:
The Tribunal examined whether the additions/disallowances made by the Assessing Officer (AO) were based on incriminating material. It found that none of the additions, including disallowances under Section 14A, prior period expenses, expenditure on provision, and denial of deduction under Section 80IA, were based on the seized petty cash book (Annexure A-8). The Tribunal concluded that the AO did not rely on any incriminating material for these additions, making the additions invalid.

4. Addition on Account of Alleged Illegal Mining:
The AO made an addition of Rs. 4,65,56,163 based on the Justice M.B. Shah Commission report, which pointed out discrepancies in the assessee's production data. The Tribunal noted that this addition was not based on any seized material handed over by the AO of the searched person but solely on the Commission's report. Therefore, the addition was not justified under Section 153C.

5. Inclusion of Royalty in the Valuation of Closing Stock:
The assessee argued that royalty should not be included in the valuation of closing stock of sub-grade iron ore. The Tribunal did not specifically address this issue as it found that the entire assessment under Section 153C was invalid without incriminating material.

6. Impact of Non-reporting of Sub-grade Production on Successive Assessment Years:
The assessee claimed that if there was an addition for non-reporting of sub-grade production in a particular year, its impact should be considered in successive years. The Tribunal did not delve into this issue, as it found the entire assessment under Section 153C invalid without incriminating material.

Conclusion:
The Tribunal directed the AO to re-compute the total income of the assessee by accepting the income declared in the return filed in response to the notice under Section 153C without making any additions or disallowances. Consequently, the appeal of the assessee was allowed, and the appeal of the Revenue was dismissed. The Tribunal did not address other grounds raised by the assessee and the Revenue, as they became academic in nature.