2016 (9) TMI 198 - AT - Income Tax

Assessment u/s 153A - addition on account of sale of scrap and on account of disallowance u/s 14A - Held that - No incriminating material has been found during the course of search relating to the assessee for A.Y. 2008-09 to justify additions made by the AO on account of sale of scrap and on account of disallowance u/s 14A r.w.r 8D and that too, that the assessment order based on the original return filed u/s 139 of the Act has not been pending and the same has been completed on the date of the search. Therefore, assessment framed u/s 153A r.w.s 143(3) of the Act for ay 2008-09 is not valid and we hold the same as null and void. Grant deduction u/s 80IB - amount received from sale of scrap - Held that - In the present case, undisputedly the impugned amount received by the assessee has been derived from sale of scrap generated from the activities carried out by the assessee which are part and parcel of the manufacturing process of industrial undertaking and scrap was general from carrying out the said activities has been sold. Thus, in view of the above noted factum, the issue is squarely covered in favour of the assessee by the said decision of the Hon ble Jurisdictional High Court in the case of CIT Vs. Sadhu Forging Ltd 2011 (6) TMI 9 - DELHI HIGH COURT

Summary

Issues Involved:

1. Validity of proceedings initiated under Section 153A in the absence of incriminating material.
2. Eligibility of income from the sale of scrap for deduction under Section 80-IB.
3. Disallowance under Section 14A read with Rule 8D.

Detailed Analysis:

1. Validity of Proceedings under Section 153A:

The primary issue was whether the proceedings initiated under Section 153A were valid in the absence of any incriminating material found during the search. The assessee argued that since no incriminating material was found, the proceedings under Section 153A were invalid. The Tribunal referred to its own decision in the assessee's case for AY 2006-07, where it was held that in the absence of incriminating material, the proceedings under Section 153A are null and void. The Tribunal reiterated that for assessments that are not abated, the assessment under Section 153A should be based on incriminating material found during the search. Since no such material was found in the present case, the Tribunal declared the assessments for AY 2008-09 to 2010-11 as null and void.

2. Eligibility of Income from Sale of Scrap for Deduction under Section 80-IB:

The assessee contended that the income from the sale of scrap should be eligible for deduction under Section 80-IB. The CIT(A) had confirmed the AO's action of treating the scrap sale income as not eligible for deduction. The Tribunal, however, relied on the jurisdictional Delhi High Court's decision in the case of Sadhu Forgings Ltd., which held that receipts from the sale of scrap generated from manufacturing activities are part and parcel of the industrial undertaking's profits and gains. Therefore, the Tribunal directed the AO to grant the deduction under Section 80-IB for the income from the sale of scrap for AY 2010-11.

3. Disallowance under Section 14A read with Rule 8D:

The assessee also contested the disallowance made under Section 14A read with Rule 8D. However, since the Tribunal had already held the assessments as null and void under Section 153A, the grounds related to disallowance under Section 14A became academic and infructuous. Consequently, these grounds were dismissed.

Conclusion:

The Tribunal allowed the appeals for AY 2008-09 to 2010-11, holding the assessments under Section 153A as null and void due to the absence of incriminating material. Additionally, it directed the AO to grant the deduction under Section 80-IB for the income from the sale of scrap for AY 2010-11, following the jurisdictional High Court's decision. The disallowance under Section 14A was dismissed as academic.