2019 (7) TMI 87 - AT - Income Tax

Validity of the assessment order passed u/s 153C - lack of satisfaction recorded by concerned authorities for issuance of notice u/s 153C - HELD THAT - As could be seen, the Bench on 20th November 2018 had directed the Revenue to produce the satisfaction recorded for issuance of notice u/s 153C. In compliance to the aforesaid direction of the Bench, learned Departmental Representative has furnished before us certain communications received from the Assessing Officer stating that as per assessment record, satisfaction was recorded for issuance of notice u/s 153C. By allowing itself to go unrepresented at the time of hearing of appeals, the assessee has not controverted the aforesaid facts. No merit in the grounds raised by the assessee. Accordingly, these grounds are dismissed. Addition u/s 41(1) - HELD THAT - We find that the addition made by the AO is not on the basis of any incriminating material found as a result of search and seizure operation. In fact, the Assessing Officer has simply repeated the addition made in the original assessment order. Thus, not only the addition made is not on the basis of any incriminating material found during the search, but, it was also subject matter of dispute in the original assessment order. That being the case, the AO could not have made the addition in the impugned assessment order. Disallowance of interest expenditure by applying the provisions of section 40A(2)(b) - HELD THAT - It is a fact, in the impugned assessment order, the AO has repeated the same addition as was made in the original assessment order. If the addition made in the original order does not survive by virtue of the order passed by CIT(A) against the original assessment order, the same cannot survive in the assessment order passed u/s 143(3) r/w section 153C - the addition deserves to be deleted. Notably CIT(A) in the impugned order following the orders of the Tribunal for the preceding assessment years has held that interest rate of 19,5% per annum is reasonable. In any case of the matter, since the disputed addition is not on the basis of any incriminating material, it has to be deleted - decided in favour of assessee

Summary

Issues:
1. Challenge to the validity of assessment order under section 153C of the Income Tax Act, 1961.
2. Addition under section 41(1) of the Act for cessation of liability.
3. Disallowance of interest expenditure under section 40A(2)(b) of the Act.

Analysis:

Issue 1: Challenge to the validity of assessment order under section 153C of the Income Tax Act, 1961:
The appeals by the assessee were against orders passed by the Commissioner (Appeals) for various assessment years. The main contention was the validity of the assessment order under section 153C of the Act. The Assessing Officer had initiated proceedings against the assessee based on information found during a search and seizure operation. The assessee challenged the initiation of proceedings due to lack of satisfaction recorded for issuing notice under section 153C. The Revenue provided communications showing satisfaction recorded. As the assessee did not appear during the hearing and did not contest the facts, the challenge was dismissed.

Issue 2: Addition under section 41(1) of the Act for cessation of liability:
The Assessing Officer had made an addition for cessation of liability in the original assessment order, which was repeated in the impugned assessment order. The Tribunal had earlier directed the first appellate authority to decide on this issue. As the addition was not based on any incriminating material and was subject to dispute in the original assessment, it was deleted in the impugned assessment order. Therefore, the addition was not justified, and the grounds were allowed.

Issue 3: Disallowance of interest expenditure under section 40A(2)(b) of the Act:
The Assessing Officer disallowed interest expenditure paid to a sister concern above a certain rate, invoking section 40A(2)(b) of the Act. However, the first appellate authority had deleted the addition in the original assessment order. As the same addition was repeated in the impugned assessment order, and it was not based on any incriminating material, the Tribunal directed the Assessing Officer to delete the addition. The grounds challenging the disallowance were allowed, and the appeal was partly allowed.

In conclusion, the Tribunal dismissed some grounds, allowed others, and partly allowed the appeals based on the specific issues raised and the merits of each case.