2015 (8) TMI 773 - HC - Income Tax

Assessments under Section 153A - Did the ITAT fall into an error in deleting the additions made in the case of the Respondent Assessee for AYs 2004-05 and 2005-06 on the ground that no incriminating material was found during the search conducted in Assessee s premises on 12th September 2007, in respect of its claims? - Held that - The Court is unable to appreciate on what basis the AO has in the assessment orders for the AYs in question proceeded to discuss the facts relating to the sale of land by the Assessee in the AY 2007-08 and conclude that the Assessee as an amalgamated company failed to comply with the requirements of Section 72-A (2) (b) (i) of the Act. The court enquired from Mr. Sahni whether there is any indication anywhere in the assessment orders that the information regarding the land of CML having been sold by the Assessee during the AY 2007-2008 was obtained as a result of any material gathered during the search or any information obtained during the search. Mr. Sahni candidly answered in the negative. The inescapable conclusion is that the AO proceeded to frame assessments under Section 153 A of the Act relying on some information not unearthed during the search. Further, whatever was recovered during the search having been destroyed in a fire was not available with the AO when he framed the assessments. Consequently, the assessment orders passed with reference to Section 153 A (1) of the Act were unsustainable in law. - Decided in favour of assessee.

Summary

Issues:
1. Interpretation of Section 72A of the Income Tax Act, 1961 regarding set off of losses in case of amalgamation.
2. Validity of assessment orders based on seized materials destroyed in a fire during a search operation.

Analysis:

Issue 1: Interpretation of Section 72A
The case involved appeals by the Revenue against an order of the Income Tax Appellate Tribunal (ITAT) regarding the set off of losses in the assessment of an amalgamated company. The Respondent Assessee, a car dealership company, amalgamated with another company, and the dispute arose regarding the conditions under Section 72A(2)(b)(i) of the Act. The condition required the amalgamated company to hold a minimum of three-fourths of the book value of fixed assets acquired from the amalgamating company for a period of five years. The Assessee had set off losses against its business income, but the Revenue disallowed it, citing non-compliance with the conditions under Section 72A.

Issue 2: Validity of Assessment Orders
Following a search operation where cash was seized, a fire destroyed the seized materials, rendering them unavailable for assessment purposes. The Assessing Officer (AO) disallowed the set off of losses based on post-search enquiries, alleging non-compliance with Section 72A and non-retention of fixed assets. The Commissioner of Income Tax (Appeals) upheld the disallowance, but the ITAT allowed the Assessee's appeals. The ITAT emphasized the need for incriminating material for additions and highlighted the absence of such material in this case. The Court noted that the AO's assessment was based on information not uncovered during the search, making the assessment orders unsustainable under Section 153A of the Act.

In conclusion, the Court found in favor of the Assessee, stating that the AO's reliance on information not found during the search rendered the assessment orders invalid. The appeals by the Revenue were dismissed, affirming the ITAT's decision in favor of the Assessee.