2020 (1) TMI 914 - AT - Income Tax

Assessment u/s 153A - proof of incriminating materials found during search - whether the assessment in dispute can be considered as unabated in the given facts and circumstances? - HELD THAT - The answer stands in favor of the assessee. It is because the time permitted under the statute for selecting the case under scrutiny was up to 30 September 2012 but there was no notice issued for the scrutiny assessment. In this regard we find support and guidance from the order in the case of Krishna Kumar Singhania Vs. DCIT 2018 (1) TMI 131 - ITAT KOLKATA wherein unless there was no any incriminating material found during the course of search relatable to concluded year 2009-10, the statute does not confer any power on the Assessing Officer to disturb the findings given thereon and income determined thereon, as finality had already been reached thereon, and such proceeding was not pending on the date of search to get itself abated. Whether assessment could be framed u/s 153A of the Act in respect of concluded proceeding without the existence of any incriminating materials found during the course of the search? - In respect of abated assessments, fresh assessments are to be framed by the AO u/s 153A of the Act which would have a bearing on the determination of the total income by considering all the aspects, wherein the existence of incriminating materials do not have any relevance. However, in respect of unabated assessments, the legislature has conferred powers on the ld. AO to follow the assessments already concluded unless incriminating materials are found in the course of the search. That for the reasons stated above and on the basis of various judicial pronouncements, we hold that the disallowances made for the Assessment years which were unabated/concluded assessments as on date of search cannot be made in the search assessments in the absence of any incriminating material found in the course of search and accordingly directed to AO to delete the addition. - Decided against revenue.

Issues Involved:
1. Applicability of Section 153A of the Income Tax Act.
2. Restriction of assessment or re-assessment under Section 153A to incriminating materials found during the search.
3. Deletion of the addition of unexplained cash credit under Section 68.
4. Deletion of the disallowance of 1/3 of expenditure as bogus.
5. Deletion of the addition for suppression of closing stock.
6. Deletion of the disallowance under Section 40(a)(ia).
7. Deletion of the disallowance of depreciation under Section 32.
8. Whether the CIT(A) should have upheld the order of the A.O.
9. Prayer to set aside the order of the CIT(A) and restore the order of the A.O.

Issue-wise Detailed Analysis:

1. Applicability of Section 153A of the Income Tax Act:
The Revenue argued that the CIT(A) erred in not appreciating the provisions of Section 153A which requires the total income to be brought under tax without any restriction. The Tribunal noted that the assessee's case was covered under search assessment under Section 153A following a search and seizure operation. The Tribunal held that the assessment year under consideration was an unabated year as no notice under Section 143(2) was issued within the permitted time frame. Thus, the assessment could not be disturbed in the absence of incriminating material found during the search.

2. Restriction of assessment or re-assessment under Section 153A to incriminating materials found during the search:
The Tribunal supported the CIT(A)'s view that additions in assessments under Section 153A should be restricted to incriminating materials found during the search. The Tribunal cited the Kolkata Tribunal's decision in Krishna Kumar Singhania vs. DCIT and the Ahmedabad Tribunal's decision in Vijay Kumar D Agarwal vs. DCIT, which held that concluded assessments could not be disturbed without incriminating material found during the search.

3. Deletion of the addition of unexplained cash credit under Section 68:
The CIT(A) deleted the addition of ?1,47,27,400/- made by the A.O. under Section 68, as there was no incriminating material found during the search to support this addition. The Tribunal upheld this deletion, citing the lack of incriminating evidence.

4. Deletion of the disallowance of 1/3 of expenditure as bogus:
The CIT(A) deleted the disallowance of ?21,58,995/- made by the A.O. as bogus expenditure. The Tribunal agreed with the CIT(A), noting that no incriminating material was found during the search to justify this disallowance.

5. Deletion of the addition for suppression of closing stock:
The CIT(A) deleted the addition of ?4,59,049/- for suppression of closing stock. The Tribunal upheld this deletion, emphasizing the absence of incriminating material found during the search.

6. Deletion of the disallowance under Section 40(a)(ia):
The CIT(A) deleted the disallowance of ?2,61,000/- under Section 40(a)(ia). The Tribunal supported this deletion, again noting the lack of incriminating material found during the search.

7. Deletion of the disallowance of depreciation under Section 32:
The CIT(A) deleted the disallowance of ?68,244/- of depreciation under Section 32. The Tribunal upheld this deletion, citing the absence of incriminating material found during the search.

8. Whether the CIT(A) should have upheld the order of the A.O.:
The Revenue contended that the CIT(A) should have upheld the A.O.'s order. However, the Tribunal found that the CIT(A) correctly deleted the additions and disallowances made by the A.O. in the absence of incriminating material found during the search.

9. Prayer to set aside the order of the CIT(A) and restore the order of the A.O.:
The Revenue prayed to set aside the CIT(A)'s order and restore the A.O.'s order. The Tribunal dismissed this prayer, reiterating that additions and disallowances could not be made without incriminating material found during the search.

Conclusion:
The Tribunal concluded that the disallowances and additions made by the A.O. for the assessment years which were unabated as of the date of the search could not be sustained in the absence of incriminating material found during the search. Consequently, the Tribunal dismissed the Revenue's appeal and upheld the CIT(A)'s order. The judgment was pronounced in open court on 20/01/2020.

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