2022 (5) TMI 38 - AT - Income Tax

Assessment completed u/s 153A - Assumption of jurisdiction to make addition without invoking the provisions of section 153C - material seized during the course of search show undisclosed income and are incriminating in nature - whether assessment order is barred by limitation - HELD THAT - As the last of the panchnama was drawn on 10.04.2007 and on that date there was a seizure as per Annexure-A/D/SCPL (refer page 66 of PB Vol.1). Consequently, reckoning the search proceedings to be completed on 10.04.2007, the assessment completed on 31.12.2009 is well within the time limited prescribed u/s 153B of the I.T.Act. The Hon ble Karnataka High Court in the case of IBC Knowledge Park Private Limited v. CIT 2016 (5) TMI 372 - KARNATAKA HIGH COURT had held that unless in the material seized during the course of search show undisclosed income and are incriminating in nature, jurisdiction u/s 153C of the Act cannot be assumed. The ratio of the above decision would apply to section 153A of the Act also. Snce the additions u/s 80IA(4) of the I.T.Act is not based on incriminating material found during the course of search in the premises of the assessee and the assessments for assessment years 2001- 2002 to 2005-2006 have already been concluded on the date of search, the A.O. cannot make an addition u/s 153A of the I.T.Act, insofar as the claim of deduction u/s 80IA of the I.T.Act is concerned. As regards other additions are concerned for all the assessment years, since it is based on the material found in the course of search of Sri.V.Sambamoorthy and in absence of initiation of proceedings u/s 153C of the I.T.Act, the other additions also cannot be made in a proceedings u/s 153A of the I.T.Act. It is ordered accordingly.

Summary

Issues Involved:
1. Assumption of jurisdiction without invoking section 153C of the I.T. Act.
2. Whether the assessment order is barred by limitation.
3. Validity of additions made under section 153A based on materials found in the search of a third party.

Detailed Analysis:

1. Assumption of Jurisdiction Without Invoking Section 153C:
The assessee contended that the assessment completed under section 153A of the I.T. Act is invalid as the additions were based on material found during a search conducted on a third party (Sri.V.Sambamoorthy). According to the assessee, the assessment should have been completed under section 153C of the I.T. Act. The Tribunal referred to several judicial pronouncements, including the Hon’ble Delhi High Court's judgment in CIT v. Kabul Chawla and the Hon’ble Karnataka High Court's decision in IBC Knowledge Park Pvt. Ltd. v. CIT, which held that unless incriminating material found during the search pertains to the assessee, the jurisdiction under section 153C cannot be assumed. The Tribunal concluded that the AO should have initiated proceedings under section 153C to use the material found in the search of Sri.V.Sambamoorthy. Since this was not done, the additions made under section 153A were invalid.

2. Whether the Assessment Order is Barred by Limitation:
The assessee argued that the search proceedings were completed in March 2007, and the assessment order should have been completed by December 2008. However, the assessments were completed on 31.12.2009. The Tribunal noted that the last panchnama was drawn on 10.04.2007, and there was a seizure on that date. Therefore, the assessment completed on 31.12.2009 was within the time limit prescribed under section 153B of the I.T. Act.

3. Validity of Additions Made Under Section 153A Based on Materials Found in the Search of a Third Party:
The Tribunal emphasized that the AO cannot use material found in the search of a third party without invoking section 153C. The Tribunal cited the Co-ordinate Bench's decision in Sri.Anil H.Lad v. DCIT, which held that materials found in another search cannot be used without initiating proceedings under section 153C. The Tribunal also referred to the Hon’ble Delhi High Court’s judgment in PCIT(Central) v. Anand Kumar Jain (HUF) & Ors., which mandated the initiation of proceedings under section 153C if the material found in the search of another person is to be used. The Tribunal concluded that the AO’s failure to initiate proceedings under section 153C rendered the additions invalid.

Conclusion:
The Tribunal held that the additions made under section 153A were invalid as they were based on material found in the search of a third party without invoking section 153C. Consequently, the appeals filed by the assessee were partly allowed, and the appeals filed by the Revenue were dismissed as infructuous. The Tribunal did not adjudicate the issue of the assessment order being time-barred since all additions were deleted on other grounds.