2016 (7) TMI 385 - AT - Income Tax

Validity of assessment u/s 153C - Held that - Respectfully following the judgement of Hon ble Jurisdictional High Court in the case of RRJ Securities (2015 (11) TMI 19 - DELHI HIGH COURT ), and the facts of the case and provisions of Section 153C of the Act discussed above and the undisputed fact that no incriminating material was found in respect of other than searched person i.e. the appellant and following the principles laid down in the case of Kabul Chawla (2015 (9) TMI 80 - DELHI HIGH COURT ), to meet the ends of justice, we allow both the grounds of appeal in favour of assessee

Summary

Issues Involved:
1. Jurisdiction and limitation of assessment framed under section 153C of the Income Tax Act, 1961.
2. Lump sum disallowance of ?5,00,000/- out of business expenses.
3. Validity of assessment without incriminating material.

Issue-Wise Detailed Analysis:

1. Jurisdiction and Limitation of Assessment under Section 153C:
The primary legal issue raised by the assessee was the jurisdiction and limitation of the assessment framed under section 153C of the Income Tax Act, 1961. The appellant argued that the assessment was beyond the statutory time limit and should be dropped. The assessee contended that the assessment proceedings initiated u/s 153C were barred by limitation as the search was conducted on 19.06.2009, and the satisfaction note was recorded on 18.07.2011. According to the appellant, the assessment could only cover six financial years prior to the date of the satisfaction note, which would be FY 2005-06 to FY 2010-11 (AY 2006-07 to AY 2011-12). Thus, the assessment for AY 2004-05 was outside the scope of section 153C.

The Tribunal referred to various judgments, including CIT Vs Aakash Arogya Mandir Pvt. Ltd. and RRJ Securities Ltd., which established that the date of receiving the books of accounts or documents by the Assessing Officer having jurisdiction over the other person is critical for determining the limitation period. The Tribunal observed that the satisfaction note was recorded on 18.07.2011, and the notices were issued after the expiry of six years, making the case time-barred. Therefore, the Tribunal held that the assessment for AY 2004-05 was beyond the jurisdiction of the Assessing Officer and barred by limitation.

2. Lump Sum Disallowance of ?5,00,000/- Out of Business Expenses:
The second issue pertained to the lump sum disallowance of ?5,00,000/- out of business expenses incurred by the appellant, which were duly supported by audited accounts. The appellant argued that such disallowance was not justified under section 153A of the Income Tax Act in the absence of any incriminating material. The Assessing Officer had made the addition based on the submissions made by the assessee during the assessment proceedings.

The Tribunal noted that no incriminating material was found during the search against the assessee. Citing the decision in CIT Vs Kabul Chawla, the Tribunal held that in the absence of any incriminating material, no addition could be made on the other than searched person. Therefore, the lump sum disallowance of ?5,00,000/- was not justified and was accordingly deleted.

3. Validity of Assessment Without Incriminating Material:
The appellant also raised the issue of the validity of the assessment without any incriminating material found during the search. The Tribunal observed that during the search, no incriminating material was found against the assessee. Referring to the decision in CIT Vs Kabul Chawla, the Tribunal reiterated that the assessment under section 153C cannot be equated to regular and normal assessments and must be based on incriminating and seized documents.

The Tribunal concluded that since no incriminating material was found against the assessee, the assessment framed under section 153C was invalid. The Tribunal allowed the appeal filed by the assessee, setting aside the assessment order.

Conclusion:
The Tribunal allowed the appeal filed by the assessee on all grounds. The assessment framed under section 153C was held to be beyond jurisdiction and barred by limitation. The lump sum disallowance of ?5,00,000/- was deleted, and the assessment was invalidated due to the absence of incriminating material. The Tribunal's decision was pronounced in the open court on 06th June, 2016.