2015 (1) TMI 556 - AT - Income Tax

Disallowance and addition during the assessment or reassessment proceedings u/s 153A - Genuineness of the expenses - CIT(A) deleted the addition of 10, 00, 000/- out of the total expenses claimed of 5.25 crores - Held that - Assessing Officer made impugned 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. On the other hand the Commissioner of Income Tax(A) deleted the addition with an observation that when the Assessing Officer 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 Commissioner of Income Tax(A) was also justified in holding that no defect or even doubt has been pointed out by the Assessing Officer 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. Under these facts and circumstances and on the basis of foregoing discussion we are of the firm opinion that the Assessing Officer made disallowance and addition during the reassessment proceedings u/s 153A of the Act without any basis and justified cogent reason. On the other hand the Commissioner of Income Tax(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. Validity of the disallowance of Rs. 10,00,000 out of the total expenses claimed by the assessee.
2. Compliance of the assessee with the requirements specified by the Assessing Officer (AO).
3. Jurisdiction and legal validity of the assessment order under section 153A read with section 143(3).
4. Relevance of incriminating material found during the search for making additions.
5. Timeliness and legality of the service of the assessment order and demand notice.

Issue-wise Detailed Analysis:

1. Validity of the Disallowance of Rs. 10,00,000:
The Assessing Officer (AO) disallowed Rs. 10,00,000 out of the total claimed expenses of Rs. 5.25 crores due to the assessee's failure to provide necessary details, documents, and explanations required to verify the genuineness of the expenses. The AO noted that the assessee did not produce books of accounts with supporting bills and vouchers, making it impossible to examine the financial statements and various transactions. Consequently, the AO completed the assessment based on the material available on record.

2. Compliance of the Assessee with AO's Requirements:
The Commissioner of Income Tax (Appeals) [CIT(A)] observed that the assessment proceedings began in October 2009, and the assessee started complying only in December 2009. The CIT(A) noted that the AO could have taken stern measures for non-compliance but failed to do so. The CIT(A) found that the AO made an ad-hoc disallowance without pointing out any specific defect or doubt regarding any particular expense. Thus, the CIT(A) deleted the disallowance, stating that it was without any basis.

3. Jurisdiction and Legal Validity of the Assessment Order under Section 153A:
The assessee argued that the assessment order under section 153A read with section 143(3) was illegal, bad in law, barred by limitation, and without jurisdiction. The CIT(A) dismissed this argument, stating that the assessment order was passed within the prescribed period, and the delay in receiving the order was due to postal delivery. The Tribunal upheld the CIT(A)'s findings, noting that the assessment proceedings for the year under consideration were not pending on the date of the search, and thus, the proceedings did not abate.

4. Relevance of Incriminating Material Found During the Search:
The Tribunal emphasized that in cases where the assessment has been completed before the search, the AO can make additions during reassessment under section 153A only based on incriminating material found during the search. The Tribunal noted that the AO did not have any incriminating material to support the ad-hoc disallowance and addition. The Tribunal upheld the CIT(A)'s decision to delete the disallowance, as it was not based on any incriminating material found during the search.

5. Timeliness and Legality of the Service of the Assessment Order and Demand Notice:
The assessee contended that the assessment order was served after the limitation period, making it illegal and without jurisdiction. The CIT(A) rejected this argument, stating that the order was passed within the limitation period, and the delay in service was due to postal delivery. The Tribunal agreed with the CIT(A) and dismissed the cross objections filed by the assessee on this ground.

Conclusion:
The Tribunal dismissed the revenue's appeal, upholding the CIT(A)'s decision to delete the disallowance of Rs. 10,00,000. The Tribunal also dismissed the cross objections filed by the assessee, noting that they became academic in nature after the revenue's appeal was dismissed. The Tribunal concluded that the AO's disallowance was not justified as it was not based on any incriminating material found during the search.

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