2018 (10) TMI 420 - AT - Income Tax

Assessment u/s 153A r.w.s. 143(3) - additions made of Gross Profit estimated on alleged unrecorded sales and addition on account of undisclosed initial investment - proof of incriminating material found during the course of search conducted on 10.03.2011 under section 132(1) - assessee is a Private Limited Company engaged in the business of manufacturing and trading of Gutkha and other Perfumatory items - Held that - The search assessment or assessment under section 153A read with section 143(3) of the Act the scope of enquiry essentially revolves around the search under section 132 of the Act or the requisition made under section 132A as the case may be. In the present case before us, during the course of search in the assessee s group of cases under section 132 of the Act dated 10.03.2010, the material seized was the same material which was seized by the Central Excise Department in their search on assessee s group of cases on 18.09.2007. The material seized by the Central Excise Department during the search was contained in a show cause notice dated 18.09.2007, which was the subject matter of investigation by the Income Tax Department by the ADIT(inv)- Thane. These show cause notice of Central Excise Department dated 18.09.2007, which was in the possession of the Department before the date of search conducted under section 132 of the Act on 10.03.2010. It means that nothing new incriminating material was found during the course of search under section 132 of the Act and even now, the learned CIT DR, could not produce any incriminating material found during the course of search under section 132 of the Act on the assessee s group of cases. Hence, in view of the given facts and the case law relied on the by the learned Counsel of the assessee in the case of Continental Warehousing Corporation (Nhava Sheva) Ltd. 2015 (5) TMI 656 - BOMBAY HIGH COURT , we quash the assessment in all the four years and allow the appeal of the assessee.

Summary

Issues Involved:
1. Condonation of delay in filing the appeal.
2. Assumption of jurisdiction under section 153A read with section 143(3) of the Income Tax Act, 1961.
3. Addition based on alleged unrecorded sales and undisclosed initial investment.

Detailed Analysis:

1. Condonation of Delay:
The appeals filed by the assessee were delayed by 72 days. The reason for the delay, as stated in the affidavit of the Managing Director, was that the appellate order was forwarded to the tax consultant, who finalized the appeal. However, the Managing Director was out of town and could only sign the appeal upon his return. The Tribunal, after considering the reasons, found them reasonable and condoned the delay, admitting the appeal.

2. Assumption of Jurisdiction under Section 153A:
The core issue was whether the Assessing Officer (AO) could assume jurisdiction under section 153A read with section 143(3) of the Act without any incriminating material found during the search. The Tribunal noted that the search action under section 132(1) was conducted on 10.03.2010, and the AO issued notices under section 153A based on a show cause notice from the Central Excise Department, which was already in possession of the Income Tax Department before the search. The Tribunal emphasized that no new incriminating material was found during the search, which is a prerequisite for assuming jurisdiction under section 153A. The Tribunal relied on the decision of the Hon’ble Bombay High Court in the case of Continental Warehousing Corporation (Nhava Sheva) Ltd., which held that for completed assessments, the AO can only reassess if incriminating material is found during the search. Consequently, the Tribunal quashed the assessments for all four years.

3. Addition Based on Alleged Unrecorded Sales and Undisclosed Initial Investment:
The AO made additions based on a show cause notice from the Central Excise Department, which estimated unaccounted sales and initial investments. The assessee argued that this notice was based on assumptions and projections without corroborative evidence. The CIT(A) upheld the AO’s additions, relying on the findings of the Central Excise Department. However, the Tribunal found that the entire assessment was based on pre-existing material (the show cause notice) and not on any new incriminating material found during the search. Thus, the Tribunal quashed the additions made by the AO.

Conclusion:
The Tribunal allowed the appeals of the assessee, quashing the assessments for all four years due to the lack of incriminating material found during the search, which is essential for invoking section 153A. The Tribunal emphasized the need for new incriminating evidence found during the search to justify reassessment under section 153A.