2023 (8) TMI 520 - HC - Income Tax

Assessment u/s 153A - disallowance u/s 40(a)(ia) - non deduction of TDS on sub-contractors payments - Whether incriminating material found in the course of search? - HELD THAT - The assessee had not kept his income undisclosed for the assessment year 2011-12. The statements of the subcontractors belonging to the Naga tribe were recorded and their statements have not been contradicted or controverted by the Assessing Officer. It was also not controverted that since the work was done by the Naga sub-contractors, therefore there was no requirement of deduction of tax at source, as their income is exempted u/s 10(26) of the I.T. Act. The subcontractors, through their statements both oral and written, have affirmed that the work was done by them for the assessee through M/s Meitei with the understanding to pay 2% commission from the payment of the assessee. Through concurrent decisions by CIT(A) as well as by the ITAT, it was held that no incriminating material was found in the course of search. It was also held that the assessment framed u/s 143(1) of the Act for the assessment year 2011-12, which was unabated/concluded assessment, deserves to be undisturbed in the absence of any incriminating material found in the course of search. As decided in Abhisar Buildwell P. Ltd. 2023 (4) TMI 1056 - SUPREME COURT no addition can be made in respect of the completed assessments in absence of any incriminating material. in the facts of the present case where inference drawn from the Ledger/Books of Accounts found during the search is similar to the case of CIT v. Kabul Chawla 2015 (9) TMI 80 - DELHI HIGH COURT is thus answered in the affirmative. It is also held that the ITAT, Guwahati Bench was justified in deleting the disallowance u/s 40(a)(ia) of the I.T. Act, by holding that the proceeding u/s 143(1) is an assessment which is concluded and unabated and it cannot be disturbed as the Ledger/Books of Accounts and the statements recorded, during the search do not constitute incriminating material. Decided in favour of assessee.

Summary

Issues Involved:
1. Justification of ITAT in deleting disallowance under Section 40(a)(ia) of the I.T. Act.
2. Consideration of ledger and books of accounts as incriminating material.
3. Comparison with the case of CIT Vs. Kabul Chawla regarding similar facts and absence of incriminating material.

Summary:

Issue 1: Justification of ITAT in Deleting Disallowance under Section 40(a)(ia) of the I.T. Act

The High Court reviewed the ITAT's decision which deleted the disallowance of Rs. 15,46,46,174/- under Section 40(a)(ia) of the Income Tax Act. The ITAT held that the assessment framed under Section 143(1) for the assessment year 2011-12 was concluded and unabated on the date of search, and thus could not be disturbed in the absence of incriminating material found during the search. The ITAT emphasized that the power to initiate proceedings under Section 153A is contingent upon the discovery of incriminating material during the search, which was not present in this case.

Issue 2: Consideration of Ledger and Books of Accounts as Incriminating Material

The ITAT ruled that the ledger and books of accounts found during the search, along with the statements recorded, did not constitute incriminating material for the addition under Section 40(a)(ia). The respondent had argued that the ledger account, being part of the regular books of accounts, could not be considered incriminating. The AO's claim that the subcontractors were not exempt from tax was deemed incorrect as the subcontractors belonged to the Naga community, exempted under Section 10(26) of the I.T. Act.

Issue 3: Comparison with the Case of CIT Vs. Kabul Chawla

The ITAT compared the facts of the present case with the case of CIT Vs. Kabul Chawla, where additions were made without any incriminating material found during the search. Following the precedent set by the Delhi High Court in Kabul Chawla, the ITAT held that in the absence of incriminating material, the concluded assessment could not be reopened. The Supreme Court also endorsed this view in Principal Commissioner of Income Tax, Central-3 v. Abhisar Buildwell P. Ltd., affirming that no additions can be made for completed assessments without incriminating material.

Conclusion:

The High Court upheld the ITAT's decision, concluding that the ITAT was justified in deleting the disallowance under Section 40(a)(ia) as the proceedings under Section 143(1) were concluded and unabated, and no incriminating material was found during the search. The appeal was dismissed as it did not involve any substantial question of law.