2017 (8) TMI 945 - AT - Income Tax

Validity of the assessment under section 153A - proof of incriminating material - Held that - We find that no addition in respect of unexplained jewellery was made during the year and the addition made in respect of assessment year 2011-12 has already been deleted by the Tribunal. The Ld. CIT(DR), however, contested that fact of benefit in respect of pension was unearthed during search proceedings, however he could not substantiate his statement with documentary evidence. The Assessing Officer has also not mentioned any document found during the course of search evidencing that assessee obtained benefit of pension out of the salary income. We observe that the fact of deduction reduced out of the gross salary was came to the notice of the Assessing Officer in assessment proceeding only and thus it cannot be said that addition made in respect of deductions claimed by the assessee, was on the basis of any incriminating material unearthed during the course of search. Thus, respectfully following the decision of the Hon ble Delhi High Court in the case of Kabul Chawla 2015 (9) TMI 80 - DELHI HIGH COURT , no addition could have been made in the year under consideration. The ground No. 1 of the appeal is accordingly allowed. Addition for various deductions claimed by the assessee out of gross salary - Held that - Regarding the pension, the Ld. CIT-A held that it will give direct benefit to the employee as deduction cannot be called as diversion of income, accordingly upheld the addition in respect of deduction towards pension. Regarding the other deductions like cantonal tax, insurance etc, the Ld. CIT-A has directed the Assessing Officer to examine whether those deductions will directly benefit the employee and decide accordingly whether it is diversion of income. The ld. CIT-A has laid benefit test to determine the diversion of income and directed the AO to verify the facts and decide the matter accordingly. In our opinion, finding of the Ld. CIT-A on the issue in dispute is well reasoned and no further interference on our part is required. Moreover, the finding of the Ld. CIT-A on the issue in dispute in assessment year 2011-12 has not been challenged by the assessee before the Tribunal. Thus, the rule of consistency also demands that assessee should not contest this issue on merit in other years. Charging of interest under section 234B - Held that - The finding of the Ld. CIT-(A) are in accordance with the provisions of section 234B(1) of the Act and accordingly, he has directed the Assessing Officer to charge the interest under section 234B(1) of the Act on the revised income after giving effect of his order. We do not find any infirmity in the order of the Ld. CIT-(A) on the issue in dispute

Summary

Issues Involved:
1. Validity of assessment under section 153A of the Income-tax Act, 1961.
2. Addition of salary income earned in a foreign domain.
3. Charging of interest under section 234B of the Income-tax Act, 1961.

Detailed Analysis:

1. Validity of Assessment under Section 153A:
The assessee challenged the validity of the assessment under section 153A, arguing that no incriminating material was found during the search and that the assessment for the year was already completed. The Tribunal referred to the decision in the case of *CIT(Central)-III Vs. Kabul Chawla*, which summarized the legal position regarding assessments under section 153A. It was held that in the absence of any incriminating material, the completed assessment could be reiterated, but no new additions could be made. Since no incriminating material was found during the search, the Tribunal concluded that no addition could have been made for the year under consideration, thus allowing the ground in favor of the assessee.

2. Addition of Salary Income Earned in a Foreign Domain:
The assessee contested the addition of salary income on the grounds that deductions made for federal pension, social security charges, insurance, etc., were diversions at source and not part of the taxable salary. The Assessing Officer had added these deductions back to the salary income, relying on the decision in *CIT Vs. Dr. K.L. Parekh*. The CIT(A) followed the decision in the assessee's own case for AY 2011-12, holding that deductions providing direct benefits to the employee were not diversions of income. The Tribunal upheld the CIT(A)'s decision, noting that the CIT(A) had reasonably directed the AO to examine whether deductions like cantonal tax and insurance directly benefited the employee. If they did, they were not diversions of income. The Tribunal found no error in this approach and dismissed the ground on merit.

3. Charging of Interest under Section 234B:
The assessee argued against the charging of interest under section 234B, claiming a bona fide belief that the income was not liable for advance tax. The CIT(A) rejected this argument, stating that interest under section 234B(1) is chargeable from the first day of April following the financial year in cases where the assessment is made for the first time under section 153A. The Tribunal agreed with the CIT(A)'s interpretation, noting that the CIT(A) had correctly directed the AO to charge interest on the revised income as per law. Hence, the ground was dismissed.

Conclusion:
- The appeal in ITA No. 5303/Del/2014 was partly allowed, with the Tribunal holding that no addition could be made under section 153A in absence of incriminating material.
- The appeal in ITA No. 5306/Del/2014 was dismissed, upholding the addition of salary income and charging of interest under section 234B.
- The appeal in ITA No. 5307/Del/2014 was partly allowed, following the decision in ITA No. 5303/Del/2014 regarding the addition of salary income.

Pronouncement:
The decision was pronounced in the open court on 4th August, 2017.