2015 (7) TMI 986 - AT - Income Tax

Validity of assessment u/s. 143(3) r.w.s. 153A - assessee s claim has been disallowed u/s. 80IA - Held that - Search was conducted at the premises of assessee on 24.09.2008, wherein assessee admitted undisclosed income in respect of its other activities for the years 2008-09 and 09-10, which is evident from the impugned assessment orders. There is nothing on record to suggest that any other evidence including any incriminating material was found during course of search for the relevant assessment years in respect of claim u/s. 80IA of the Act. In this background, in absence of any incriminating material found during search, no addition can be made in respect of unabated assessments and which have become final as on the date of search. The completed assessments for the years under appeal have become final and are not abated since they are not pending as on the date of search. Therefore, even though pursuant to issue of notice u/s. 153A, assessments for 6 years immediately prior to the date of search are to be framed u/s. 153A, but in respect of unabated assessments which have become final and no incriminating material is found during the course of search for those years, no addition could be made in respect of such unabated assessments.See case of Continental Warehousing Corporation 2015 (5) TMI 656 - BOMBAY HIGH COURT Thus Revenue authorities were not justified in making disallowance claimed u/s. 80IA in respect of unabated assessments because there was no incriminating document found during search which could suggest that claim u/s. 80IA is not permissible even though assessment u/s. 153A can be made. - Decided in favour of assessee.

Summary

Issues:
- Disallowance of deduction under Section 80IA for assessment years 2004-05 and 2005-06.
- Validity of framing assessment under Section 143(3) read with Section 153A of the Income Tax Act.

Analysis:

1. Disallowance of Deduction under Section 80IA:
- The assessee contested the disallowance of deductions amounting to Rs. 61,82,292 for A.Y. 2004-05 and Rs. 47,31,665 for A.Y. 2005-06 before the CIT(A) and subsequently before the ITAT. The Revenue authorities based their decision on the retrospective insertion of an explanation under Section 80IA(13) by the Finance Act, 2009. This provision declared that no deduction under Section 80IA would apply to a business in the nature of works contract executed by the undertaking. The assessee argued that they were eligible for the deduction as they had only executed infrastructure development contracts. The ITAT, after considering the submissions and legal precedents, held that the disallowance was unjustified as no incriminating material was found during the search, and the completed assessments had become final and not abated. Therefore, the claim under Section 80IA(4) was upheld, and the Assessing Officer was directed accordingly.

2. Validity of Framing Assessment under Section 143(3) read with Section 153A:
- The primary issue in both assessment years was the validity of framing assessments under Section 143(3) read with Section 153A of the Income Tax Act. The assessee contended that in the absence of any material indicating undisclosed income for the relevant years, the assessment under Section 143(3) read with Section 153A was unwarranted. The ITAT analyzed the facts and legal provisions, noting that the original assessments for the years under appeal were completed under Section 143(3) with due consideration of the deductions claimed by the assessee. Subsequently, a search was conducted where undisclosed income was admitted for different years, but no incriminating material was found for the years in question. Relying on judicial precedents, including decisions by the Bombay High Court and ITAT Special Bench, the ITAT held that assessments under Section 153A should only be made based on incriminating material for unabated assessments. As no such material was found, the ITAT quashed the disallowance of deductions under Section 80IA and allowed the appeals filed by the assessee for both assessment years.

In conclusion, the ITAT allowed the appeals filed by the assessee, quashed the disallowance of deductions under Section 80IA, and directed the Assessing Officer to act accordingly. The judgment emphasized the importance of incriminating material for framing assessments under Section 153A and upheld the principle that finalized assessments cannot be revisited without such material.