2018 (2) TMI 965 - AT - Income Tax

Assessment proceedings u/s. 153C - disallowance of the claims of expenditure u/s. 37 (1) - principles of res judicata OR consistency - Held that - We find that the documents do not disclose any undisclosed income on part of the assessee for any of the above AY s . The AO had disallowed business losses and that clearly prove that seized documents were of no relevance for the AO to make the disallowance. We allow the additional grounds raised by the assessee for all the three AY. s and decide the same in its favour. Thus, the assessment orders passed by the AO. s fail on the touch-stone of jurisdictional validity for AY. 2008-09, 2010-11 and 2011-12. The cases relied upon by the assessee, before us, also support the views taken by us. Therefore, we hold that the orders passed by the AO. s and confirmed by the FAA are not valid either on jurisdictional question or on merits. So, revering the orders of the FAA, we allow the appeals filed by the assessee-company. The Hon ble Bombay High Court in the case of Gopal Purohit (2010 (1) TMI 7 - BOMBAY HIGH COURT) has held that that there should be uniformity in treatment and when facts and circumstances for different years were identical particularly in the case of the same assessee. While upholding the principles of res judicata the FAA has not demonstrated as to how the facts of AY. 2009-10 were different from the facts of other three AY s. especially of AY. 2008-09. This one more reason to reverse the order of the FAA. - Decided in favour of assessee.

Issues Involved:
1. Validity of the notice and assessment order under Section 153C.
2. Jurisdictional validity of the assessment proceedings.
3. Justification of disallowances and additions made by the Assessing Officer (AO).
4. Application of the principle of consistency in income tax proceedings.

Detailed Analysis:

1. Validity of the Notice and Assessment Order under Section 153C:

The assessee challenged the notice dated 22.10.2012 issued under Section 153C and the subsequent assessment order passed under Section 143(3) read with Section 153C, arguing that the material seized during the search did not reveal any undisclosed income. The tribunal admitted the additional grounds raised by the assessee, which were of a legal nature and went to the root of the matter. The tribunal found that the seized material did not pertain to the assessment years (AYs) under consideration (2008-09, 2010-11, and 2011-12) but to AY 2012-13, thus rendering the assessment proceedings under Section 153C void ab initio.

2. Jurisdictional Validity of the Assessment Proceedings:

The tribunal observed that for invoking Section 153C, there must be a relation between the seized material and the assessed income. The seized documents, which were extracts of ledger accounts, did not represent any undisclosed income of the assessee for the AYs in question. The tribunal cited the Supreme Court's decision in the Sinhgad Technical Education Society case, which emphasized that incriminating material must pertain to the AYs in question. Since the AO did not refer to any seized documents while making disallowances, the tribunal held that the assessment orders lacked jurisdictional validity.

3. Justification of Disallowances and Additions Made by the AO:

The AO had disallowed expenses under various heads, resulting in business losses for the AYs under consideration. The First Appellate Authority (FAA) upheld the disallowance to the extent of 50%, relying on the principle that the expenses should have been capitalized. However, the tribunal found that the disallowances were made based on regular books of accounts and not on any incriminating material. The tribunal concluded that the disallowances were unjustified and allowed the assessee's appeals.

4. Application of the Principle of Consistency in Income Tax Proceedings:

The tribunal emphasized the importance of consistency in income tax matters, citing various High Court decisions. It noted that the FAA had not demonstrated how the facts of AY 2009-10 were different from the facts of the other three AYs, particularly AY 2008-09. The tribunal held that the principle of res judicata did not apply to income tax proceedings, but the rule of consistency did. Therefore, the tribunal reversed the FAA's order, allowing the appeals filed by the assessee.

Conclusion:

The tribunal allowed the appeals filed by the assessee for all three AYs, holding that the assessment orders passed by the AO were invalid both on jurisdictional grounds and on merits. The tribunal emphasized the need for consistency in income tax proceedings and found that the disallowances made by the AO were not justified. The order was pronounced in the open court on 07th February 2018.

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