2015 (11) TMI 1358 - AT - Income Tax

Assessment under section 153C - Disallowance on account of administrative and other overheads - plea of the assessee was that for the year under consideration the return filed by the assessee having been deemed to be processed under section 143(1) of the Act, in the absence of any notice issued under section 148 of the Act it attained finality - Held that - It is not in dispute that the assessments in both the cases have attained finality by operation of law in as much as the assessee filed returns of income before the search and seizure action took place and even the proceedings under section 143(1) of the Act have attained finality before the date of receipt of the files by the AO concerned. Even otherwise it is not in dispute that there was no incriminating material found during the course of search in respect of the assessee herein and in fact no addition was made by AO on the strength of the documents seized, in this assessment year. Thus the proceedings initiated under section 153C are not valid and therefore the assessments made thereon were quashed. The proceedings initiated under section 153C and the assessment made in the instant case is also not valid in as much as there is no incriminating material found during the course of search, pertaining to A.Y. 2011-12. Since the notice issued under section 153C is held to be invalid, the assessment made thereon has no legs to stand and therefore it is not necessary to deal with other disallowances. - Decided in favour of assessee

Summary

Issues Involved:
1. Validity of proceedings initiated under section 153C and the orders passed under section 143(3) r.w.s. 153C.
2. Justification of CIT(A) in deleting the disallowance of administrative and other overheads as capital expenditure.

Detailed Analysis:

1. Validity of Proceedings Under Section 153C:
The assessee contended that the proceedings initiated under section 153C and the orders passed under section 143(3) r.w.s. 153C were bad in law as no incriminating material was found connected to the assessment under consideration. The CIT(A) observed that decisions rendered in the context of section 153A are equally applicable to section 153C. The CIT(A) relied on the decision of the Hon'ble Delhi High Court in CIT vs. Anil Kumar Bhatia, which mandates that the AO is empowered to examine all material, including that found during search and seizure proceedings.

However, the Tribunal noted that the assessments for the years under consideration had attained finality before the date of initiation of search. According to the Tribunal, as per the first proviso to section 153C, no incriminating material was found during the course of the search. The Tribunal referenced the Hon'ble Delhi High Court's decision in CIT vs. Kabul Chawla and the Hon'ble Bombay High Court's decision in CIT vs. Continental Warehousing Corporation, which held that no addition could be made in respect of assessments that have become final if no incriminating material is found during the search.

The Tribunal also referenced the ITAT Cochin (Third Member) decision in DCIT vs. Royal Cartons Pvt. Ltd., which stated that additions must be based on material found during the search operation. The Tribunal concluded that the order passed under section 143(3) r.w.s. 153C was without jurisdiction and invalid as no incriminating material was found during the search concerning the assessment years under consideration.

2. Justification of CIT(A) in Deleting the Disallowance of Administrative and Other Overheads:
The Revenue contended that the CIT(A) was not justified in deleting the disallowance of administrative and other overheads without appreciating that the assessee had not commenced its business, and thus the expenditure should have been capitalized as capital work-in-progress.

The CIT(A) observed that the business of the assessee had already been set up and commissioned. The assessee had undertaken activities such as acquiring land, clearing plots, and obtaining necessary consents and clearances. The CIT(A) concluded that the expenditure incurred by the assessee was allowable as a deduction.

The Tribunal, however, did not delve into the merits of the addition/disallowance due to the invalidity of the proceedings under section 153C. Since the notice issued under section 153C was held invalid, the assessments made thereon were also invalid, rendering the discussion on the merits of the disallowance unnecessary.

Conclusion:
The Tribunal dismissed the appeals filed by the Revenue on the ground of academic importance and allowed the cross objections filed by the assessee, concluding that the proceedings under section 143(3) r.w.s. 153C were invalid due to the absence of incriminating material found during the search.