2021 (2) TMI 764 - HC - Income Tax

Assessment u/s 153A - no incriminating material found in search - HELD THAT - No substantial question of law arises, as the matter is squarely covered by Kabul Chawla 2015 (9) TMI 80 - DELHI HIGH COURT which has been correctly applied to the facts of the case by the ITAT. The ITAT, in the impugned order has held that in the audited report filed by the assessee along with the report, cash book, ledger, bank book etc. were mentioned; that the respondent assessee was maintaining books on TALLY Accounting Software which was seized during the search and was being treated as incriminating material; however, regular books of account of the assessee, by no stretch of imagination, could be treated as incriminating material to form basis of framing assessment under Section 153A read with Section 143(3) . Assessment for the Assessment Years 2008-2009 and 2009-2010 were completed under Section 143(3) vide orders dated 28th July, 2010 and 31st May, 2011 respectively and audited books of account were thoroughly examined and details of purchase of milk must have been scrutinized as it was part of audited financial statement of accounts; as per Kabul Chawla supra, completed assessments can be interfered only on the basis of some incriminating material unearth during the search. With respect to the Assessment Years 2010-2011 to 2012-2013, the ITAT held that though no assessment was framed under Section 143(3) but it could safely be concluded that the period of limitation for issuing a notice under Section 143(2) expired much before the date of the search; reliance was placed on Chintels India Ltd. Vs. Deputy Commissioner of Income-Tax 2017 (7) TMI 746 - DELHI HIGH COURT holding that once an assessee does not receive a notice under Section 143(2) of the Act within the stipulated period, such an assessee can take it that the return filed by him has become final and no scrutiny proceeding are to be undertaken with respect to that return. Revenue appeal dismissed.

Summary

Issues:
- Appeal against the order of the Income Tax Appellate Tribunal (ITAT) for Assessment Years 2008-2009 to 2012-2013.
- Scope of Commissioner of Income Tax (Central)-III Vs. Kabul Chawla (2016) 380 ITR 573 (Delhi).
- Treatment of incriminating evidence found during a search operation under Section 132 of the Income Tax Act, 1961.
- Distinction between processing of return of income and assessment of income under Section 143(1) and Section 143(3) respectively.

Analysis:
1. The appeals challenged the ITAT's order for the Assessment Years 2008-2009 to 2012-2013. The respondent assessee's appeals were allowed, while the appellant Revenue's appeals were dismissed.

2. The counsel for the appellant Revenue contended that a substantial question of law arises as the ITAT expanded the scope of the decision in Commissioner of Income Tax (Central)-III Vs. Kabul Chawla (2016) 380 ITR 573 (Delhi).

3. The appellant Revenue argued that incriminating evidence emerged during a search operation under Section 132 of the Income Tax Act, 1961, leading to additions to the respondent assessee's income. The ITAT's decision was challenged based on the distinction between processing a return of income under Section 143(1) and assessing income under Section 143(3).

4. The ITAT held that the audited financial statements of the assessee, including books of account, were not incriminating material to form the basis of assessment under Section 153A read with Section 143(3) of the Act. Completed assessments could only be interfered with based on incriminating material found during the search. For the Assessment Years 2010-2011 to 2012-2013, the ITAT concluded that the period for issuing a notice under Section 143(2) had expired before the search, relying on Chintels India Ltd. Vs. Deputy Commissioner of Income-Tax (2017) 397 ITR 416 (Delhi).

5. The High Court dismissed the appeals, stating that the matter was squarely covered by the decision in Kabul Chawla. The ITAT correctly applied the law to the facts of the case, emphasizing that regular books of account could not be considered incriminating material for framing assessments under Section 153A read with Section 143(3) of the Act.

6. In conclusion, the High Court upheld the ITAT's decision, emphasizing the importance of incriminating material found during a search operation for interfering with completed assessments and the distinction between processing and assessing income under the Income Tax Act.