2018 (9) TMI 104 - AT - Income Tax

Assessment u/s 153A - Held that - In view of the law laid down by Hon ble jurisdictional High Court in Kabul Chawla (2015 (9) TMI 80 - DELHI HIGH COURT) case, we are of the considered view that when no incriminating material has come on record during the search and seizure operation conducted at the premises of the assessee rather assessment has been based upon special audit report whereas such facts were already brought on record by the assessee by filing original return of income along with computation, the assessment framed u/s 153A read with section 143 (3) is not sustainable in the eyes of law, hence the assessments for AYs 2002-03 & 2003-04 are ordered to be quashed.

Summary

Issues Involved:
1. Jurisdiction of AO under Section 153A read with Section 143(3) of the Act.
2. Additions based on special audit report vs. incriminating material.
3. Legitimacy of various specific additions and disallowances.
4. Treatment of returns filed under Section 153A.

Issue-wise Detailed Analysis:

1. Jurisdiction of AO under Section 153A read with Section 143(3) of the Act:
The assessee contended that the AO had no jurisdiction to pass the order under Section 153A read with Section 143(3) as no incriminating document was found during the search. The Tribunal referred to the legal position established in the case of CIT vs. Kabul Chawla, emphasizing that in the absence of any incriminating material, the completed assessment can only be reiterated, and no fresh additions can be made. The Tribunal concluded that the assessments for AYs 2002-03 and 2003-04 were not sustainable as they were based on a special audit report rather than any incriminating material found during the search.

2. Additions Based on Special Audit Report vs. Incriminating Material:
The Tribunal noted that the AO's additions were based on the special audit report and not on any incriminating material found during the search. The Tribunal highlighted that the law requires that any additions or reassessments under Section 153A must be based on incriminating material unearthed during the search. As no such material was found, the Tribunal quashed the assessments for AYs 2002-03 and 2003-04.

3. Legitimacy of Various Specific Additions and Disallowances:
- AY 2002-03:
- Addition of ?2,54,789 on account of pre-paid portion of insurance was deemed arbitrary and unwarranted.
- Addition of ?8,000 for generator shifting charges, ?4,067 for negative cash balance, and ?50,965 for addition in fixed assets were also contested and found unjustified.
- AY 2003-04:
- Disallowance of ?11,50,128 for traveling expenses and ?50,000 for business promotion expenses was found unjustified.
- Similar disallowances for insurance, lease rent, and fixed assets additions were contested.
- AY 2004-05:
- Additions for negative cash balance, director traveling expenses, and fixed assets were contested.
- The Tribunal upheld the AO's decision as the assessee failed to file the return within the due date and the subsequent return was treated as filed under Section 139(4), which cannot be revised under Section 139(5).

4. Treatment of Returns Filed Under Section 153A:
For AY 2004-05, the Tribunal noted that the assessee did not file the return before the due date mentioned in the notice under Section 153A. Consequently, the return was treated as filed under Section 139(4), which cannot be revised under Section 139(5). The Tribunal upheld the CIT (A)'s decision to reject the revised return and dismissed the appeal for AY 2004-05.

Conclusion:
The Tribunal allowed the appeals for AYs 2002-03 and 2003-04, quashing the assessments due to the lack of incriminating material. The appeal for AY 2004-05 was dismissed, upholding the AO's and CIT (A)'s decisions. The Tribunal's order emphasized the necessity of incriminating material for reassessment under Section 153A and the proper filing and revision of returns under the Act.