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2019 (12) TMI 682 - AT - Income TaxRevision u/s 263 - assessment order passed u/s 153A r.w.s 143(3) - HELD THAT - We note that the assessee filed its return of income u/s 139(1) on 30.09.2011. The time limit for issue of scrutiny notice u/s 143(2) expired on 30.09.2012. The search was initiated in the assessee s case on 13.03.2014. Therefore, we note that at the time of search and seizure the assessment for A.Y.2011-12 was not pending. Therefore, in case of assessee, the assessment year 2011-12 is an unabated assessment. It is settled position of law that in case of unabated assessment, the addition cannot be made by AO without incrementing documents unearthed during search. In assessee s case, during search operation, the search team did not find and incrementing material. Assessment order u/s 153A /143(3) was passed on 31.03.2016 and the ld. PCIT has issued notice u/s 263 on 08.12.2017. Therefore, we note that assessment year 2011-12 under consideration, was not pending on the date of search, hence it is an unabated proceedings. Without incriminating material in case of unabated assessment, the addition could not be made therefore, order passed by the AO is not erroneous. Since, the assessment which is not pending before the AO is an unabated proceeding and the Assessing Officer is empowered to make any addition only based on incriminating materials found/unearthed during search. This is a settled position of law and is no longer res integra. In this case, no any incriminating material unearthed by search team therefore Assessing Officer s order is not erroneous. Therefore, we are of the view that the order passed by the AO is neither erroneous nor prejudicial to the interest of the revenue. Hence, we quash the order u/s 263 - Appeal of the assessee is allowed.
Issues Involved:
1. Jurisdiction of the Principal Commissioner of Income Tax (PCIT) under Section 263 of the Income Tax Act, 1961. 2. Erroneous and prejudicial nature of the assessment order. 3. Allowability of interest paid to the bank against income computed under the head 'Income from house property'. 4. Examination of whether the rental income should be assessed as “Business Income” or “House Property Income”. 5. Standard deduction and interest deduction under Section 24 of the Income Tax Act. 6. Impact of search and seizure operations and the concept of unabated assessment. 7. Examination of whether the assessment order was passed without requisite investigation and inquiries. Issue-wise Detailed Analysis: 1. Jurisdiction of the Principal Commissioner of Income Tax (PCIT) under Section 263 of the Income Tax Act, 1961: The PCIT exercised jurisdiction under Section 263, issuing a notice to the assessee to explain why a revisionary order should not be passed to correct the perceived error. The PCIT's jurisdiction was questioned by the assessee, arguing that the notice was without jurisdiction and the order passed was bad in law. 2. Erroneous and Prejudicial Nature of the Assessment Order: The PCIT held that the assessment order was erroneous and prejudicial to the interest of revenue. The assessment order allowed deductions for interest paid without proper examination, leading to an excess deduction of ?7,90,69,892/-. The PCIT concluded that the AO's failure to investigate the nature of interest paid and the classification of rental income resulted in an erroneous order prejudicial to the revenue. 3. Allowability of Interest Paid to the Bank Against Income Computed Under the Head 'Income from House Property': The PCIT noted that the AO allowed a deduction for interest paid by the assessee without examining whether the interest was paid on loans taken for constructing or acquiring the go-down from which rental income was derived. The PCIT directed the AO to determine the correct amount of interest to be deducted under Section 24(b). 4. Examination of Whether the Rental Income Should Be Assessed as “Business Income” or “House Property Income”: The PCIT observed that the AO did not examine whether the income from the go-down should be assessed as “Business Income” or “House Property Income”. The AO had accepted the assessee's claim without making requisite inquiries, leading to an erroneous order. 5. Standard Deduction and Interest Deduction Under Section 24 of the Income Tax Act: The PCIT found that the AO allowed a standard deduction of 30% under Section 24(a) and a deduction for interest on borrowed capital under Section 24(b) without proper examination. The PCIT directed the AO to reassess these deductions based on a detailed investigation of the Panvel Project and its completion status. 6. Impact of Search and Seizure Operations and the Concept of Unabated Assessment: The assessee argued that the assessment for AY 2011-12 was not pending at the time of search and seizure, making it an unabated assessment. The assessee contended that no addition should be made without incriminating material found during the search. The Tribunal agreed, noting that in the case of unabated assessments, additions cannot be made without incriminating material. 7. Examination of Whether the Assessment Order Was Passed Without Requisite Investigation and Inquiries: The Tribunal examined whether the AO's order was passed without proper investigation and inquiries. It was noted that the AO had considered the issue of income from the commercial go-down and took a possible view. The Tribunal found that the AO's order was not erroneous as it was based on the facts and circumstances presented. Conclusion: The Tribunal concluded that the assessment order was neither erroneous nor prejudicial to the interest of the revenue. The Tribunal quashed the order passed by the PCIT under Section 263, allowing the appeal of the assessee. The Tribunal emphasized that in the case of unabated assessments, additions cannot be made without incriminating material, and the AO's order was based on a permissible view supported by the facts and circumstances of the case.
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