2014 (12) TMI 472 - AT - Income Tax

Incriminating documents seized during search Validity of notice u/s 153C Held that - The basis for initiation of proceedings u/s. 153C is the information/valuables/documents seized belonging to persons other than covered u/s. 153A - there is no indication as to the information on the valuables/ documents seized during from the search proceedings conducted in the case of M/s. Midwest Granites (P) Ltd(MGPL) and it s directors and no such valuables or documents relatable/belong to the assessee - no addition was made based on the incriminating material found during the course of search proceedings conducted in case of MGPL which is an associate concern of the assessee company - additions made in course of assessment proceedings u/s. 153A should be derived from the incriminating material found during the course of search - The assessment proceedings u/s. 153C are also considered as proceedings u/s. 153A since 153C is read with Sec. 153A. The assessments for the AYs 2003-04 2004-05 2005-06 2006-07 07-08 and 2008-09 were unabated and treated to have been concluded AO has not specifically pointed to any availability of seized/ incriminating material related to the assessee found during the search proceedings conducted in case of MGPL or the directors of the group companies - There is no specific reference to any material or valuables that are relatable to the assessee and have become the basis for making the additions or disallowances and prompt the assessing officer to re-agitate the issues which were otherwise settled in the unabated assessments - the various additions made by the AO in the assessment orders for the AY 2003- 04 is not justified and are directed to be deleted - there is no incriminating material found in the course of search - as there is already finding that no incriminating material had been found pertaining to assessee very issuance of notice u/s 153C itself is bad - there is no merit in Revenue contention Decided against revenue.

Summary

Issues Involved:

1. Jurisdiction under Section 153C.
2. Validity of additions without incriminating material.
3. Applicability of judicial precedents.

Detailed Analysis:

1. Jurisdiction under Section 153C:

The primary issue revolves around the jurisdiction to initiate proceedings under Section 153C of the Income Tax Act. The assessee contended that the initiation of proceedings under Section 153C was invalid as no incriminating material pertaining to the assessee was found during the search conducted on Midwest Granite P. Ltd. The assessee relied on the ITAT Special Bench decision in All Cargo Global Logistics Ltd. vs. DCIT, which held that proceedings under Section 153C can only be initiated if incriminating material is found. The CIT(A) upheld this contention, noting that the assessment orders did not indicate any seized material related to the assessee. The Tribunal agreed with the CIT(A), stating that the issuance of notice under Section 153C was bad in law as no incriminating material was found.

2. Validity of Additions without Incriminating Material:

The assessee argued that additions made by the Assessing Officer (A.O.) were not justified as they were not based on any incriminating material found during the search. The CIT(A) and the Tribunal both noted that the A.O. made additions based on items like contributions to P.F., prior period expenses, and bad debts written off, which were already settled in earlier assessments. The Tribunal cited various judicial decisions, including the Special Bench decision in All Cargo Global Logistics Ltd., which stated that additions in assessments under Section 153A/153C should be based on incriminating material found during the search. The Tribunal concluded that the A.O. was not justified in making these additions as no such material was found.

3. Applicability of Judicial Precedents:

The CIT(A) and the Tribunal relied heavily on judicial precedents to support their decisions. The CIT(A) referred to multiple cases, including LMJ International Ltd., KG Exports, and Platina Properties Projects Ltd., which held that regular assessment items cannot be added in proceedings under Section 153A/153C unless based on incriminating material. The Tribunal also referred to the Special Bench decision in All Cargo Global Logistics Ltd., which emphasized that assessments under Section 153A should be based on incriminating material. The Tribunal noted that these precedents supported the assessee's contention that the additions made by the A.O. were not justified.

Conclusion:

The Tribunal upheld the CIT(A)'s decision that the proceedings under Section 153C were invalid as no incriminating material was found during the search. Consequently, the additions made by the A.O. were also held to be unjustified. The Tribunal dismissed the appeals of both the Revenue and the assessee, stating that there was no need to adjudicate the issues on merits since the proceedings themselves were held to be bad in law. The Tribunal's decision was based on the consistent application of judicial precedents that require incriminating material for additions in assessments under Section 153A/153C. The order was pronounced in the open Court on 10.12.2014.