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2024 (9) TMI 1383 - HC - Income TaxAssessment u/s 153C - disallowance of deduction claimed u/s 10B - HELD THAT - It is forthcoming that the Tribunal while adjudicating regarding the disallowance of deduction claimed u/s 10B has noticed that the said aspect is covered by a coordinate Bench judgment of this Court in the case of Tata Elxsi Ltd. 2015 (10) TMI 634 - KARNATAKA HIGH COURT Having regard to the fact that the Tribunal has decided the matter in accordance with a judgment of this Court, the Revenue has not demonstrated as to how the same is erroneous. The substantial question of law No.1 is answered against the Revenue and in favour of the assessee. AO has not followed the procedure as envisaged u/s 153C - It is relevant to note that Chapter VI of the IT Act contemplates the procedure for assessment, wherein various stipulations are provided in terms of Sections 136 to 153 of the IT Act. Section 153A, 153B and 153C have been inserted by the Finance Act, 2003 w.e.f., 1.6.2003, which specifically contemplates assessments in cases of search or requisition. Section 153A of the IT Act contains various stipulations with regard to the person searched and Section 153C of the IT Act contains various stipulations with regard to such other person, other than the person searched. A coordinate Bench of this Court in the case of Dinakar Suvarna 2022 (7) TMI 800 - KARNATAKA HIGH COURT while considering an appeal of the assessee, in a fact situation wherein an assessment was re-opened u/s 147 of the IT Act based on a search conducted and the procedure u/s 153 of the IT Act was not followed was under consideration. In view of the settled position of law as noticed above, once material pursuant to a search is relied upon, the AO is required to follow the procedure as contemplated under Section 153A, 153B and 153C and it is impermissible for the AO to continue the regular assessment. Decided in favour of the assessee and against the Revenue.
Issues Involved:
1. Deduction under Section 10B of the Income Tax Act. 2. Applicability of Section 153C versus Section 143(3) for assessment based on seized material. Issue-wise Detailed Analysis: Re. substantial question of law No. 1: Deduction under Section 10B of the Income Tax Act The Tribunal adjudicated on the disallowance of the deduction claimed under Section 10B of the IT Act by referencing a coordinate Bench judgment of the High Court in Tata Elxsi Ltd. v. ACIT. The Tribunal decided the matter in accordance with this precedent, and the Revenue failed to demonstrate any error in this decision. Consequently, the substantial question of law No. 1 was answered against the Revenue and in favor of the assessee. Re. substantial question of law No. 2: Applicability of Section 153C versus Section 143(3) for assessment based on seized material The Tribunal addressed the issue of whether the Assessing Officer (AO) followed the correct procedure under Section 153C of the IT Act when making additions based on material seized from a third party, Shri Manoj Kumar Jain (MKJ). The Tribunal found that the AO did not invoke Section 153C but instead used the seized materials during regular assessment proceedings under Section 143(3). The Tribunal emphasized that the AO should have followed the procedure under Section 153C, which involves handing over the seized materials to the AO having jurisdiction over the assessee and then assuming jurisdiction to assess the total income based on those materials. The Tribunal concluded that the AO's failure to follow this procedure invalidated the additions made during the regular assessment proceedings. The High Court referenced several precedents, including Dinakar Suvarna v. DCIT and Shyam Sunder Khandelwal v. ACIT, to support the Tribunal's decision. These cases reinforced the requirement for the AO to follow the special procedure under Sections 153A, 153B, and 153C when dealing with seized materials from a search. In summary, the High Court held that the AO's actions were contrary to the provisions of the IT Act, as the regular assessment proceedings should have abated upon receipt of the seized materials, and fresh proceedings under Section 153C should have been initiated. The substantial question of law No. 2 was answered in favor of the assessee and against the Revenue. Conclusion: The appeal was dismissed as being devoid of merit, with both substantial questions of law answered in favor of the assessee.
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