2014 (10) TMI 778 - AT - Income Tax

Proceedings u/s 153A - Search and seizure operation u/s 132 Relevant details for verification of genuineness of expenses submitted or not partial expenses deleted Held that - Following the decision in M/s ALL CARGO GLOBAL LOGISTICS LTD Versus DEPUTY COMMISSIONER OF INCOME TAX 2012 (7) TMI 222 - ITAT MUMBAI (SB) revenue have not disputed the fact that assessment proceeding for the year was not pending on the date of search - The AO made disallowance and addition out of total expenses claimed by the assessee without any incriminating material said to be found during the course of search and on the estimate and ad hoc basis - CIT(A) deleted the addition with an observation that when the AO himself has failed to invoke the relevant provisions of the Act to ensure compliance of the directions by the assessee, it may not be a strong basis to make a random estimated disallowance out of expenses debited to the P&L account - The CIT (A) was also justified in holding that no defect or even doubt has been pointed out by the AO with regard to any particular expense to which disallowance could have been pegged and under these circumstances, ad hoc disallowance being without any basis is not sustainable - there was no incriminating material before the AO which was found during the course of search to support the ad hoc disallowance and addition AO made disallowance and addition during the reassessment proceedings u/s 153A of the Act without any basis and justified cogent reason - CIT(A) rightly deleted the disallowance and addition as per letter and spirit of the relevant provisions of the Act Decided against revenue.

Issues Involved:
1. Legality of the addition of Rs. 10,00,000 out of total expenses claimed of Rs. 5.25 crores.
2. Validity of the assessment order issued under section 153A read with section 143(3) of the Income Tax Act.
3. Timeliness and jurisdiction of the assessment order served on the assessee.

Detailed Analysis:

1. Legality of the Addition of Rs. 10,00,000:

The primary issue raised by the Revenue was whether the Commissioner of Income Tax (Appeals) [CIT(A)] erred in deleting the addition of Rs. 10,00,000 out of the total expenses claimed of Rs. 5.25 crores. The Assessing Officer (AO) had disallowed this amount due to the assessee's failure to submit necessary details, documents, and explanations during the assessment proceedings, making it impossible to verify the genuineness of the expenses. The AO noted that the assessee did not produce books of accounts with supporting bills and vouchers, which led to the disallowance.

The CIT(A) deleted the addition, stating that the AO had not pointed out any specific defect or doubt regarding any particular expense. The CIT(A) also noted that the AO failed to invoke provisions to ensure compliance by the assessee, thus making a random estimated disallowance was not justified.

The Tribunal upheld the CIT(A)'s decision, emphasizing that the addition was made without any incriminating material found during the search and was based on an estimate. The Tribunal cited the Special Bench decision in the case of All Cargo Global Logistics Ltd. vs. DCIT, which stated that in cases where assessments are not pending, additions can only be made based on incriminating material found during the search. Since no such material was found, the disallowance was not sustainable.

2. Validity of the Assessment Order Issued Under Section 153A:

The assessee filed cross-objections challenging the legality of the assessment order under section 153A read with section 143(3), arguing that the additions were not based on any incriminating material found during the search. The Tribunal noted that the assessment for the year under consideration was not pending on the date of the search, and thus, the AO could only make additions based on incriminating material found during the search.

The Tribunal observed that the AO did not have any such incriminating material to justify the disallowance. Therefore, the assessment order under section 153A was not valid for making the addition of Rs. 10,00,000.

3. Timeliness and Jurisdiction of the Assessment Order:

The assessee also contended that the assessment order dated 29.12.2009, served on 02.01.2010, was illegal and barred by limitation. The CIT(A) rejected this argument, stating that the order was passed within the prescribed period, and the delay in service was due to postal delivery time. The Tribunal agreed with the CIT(A) and held that the assessment order was validly served within the limitation period.

Conclusion:

The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s order that deleted the addition of Rs. 10,00,000. The Tribunal also dismissed the assessee's cross-objections as academic, given that the Revenue's appeal was disallowed, and no disallowance or addition existed against the assessee for the year under consideration. The Tribunal concluded that the assessment order under section 153A was not justified without incriminating material found during the search.

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