2022 (5) TMI 415 - AT - Income Tax

Assessment u/s 153A - addition made towards sub-contract expenses - CIT-A deleted the addition on the ground that the addition can only be made on the basis of material seized during Search - whether Assessing Officer has brought out in the Assessment Order that some of the sub-contractors who were examined have stated that they have not done, any sub-contract work for the assessee company? - HELD THAT - We note with the able assistance of both the parties that the CIT(A) has quashed the impugned assessment itself as not based on any incriminating material found or seized during the course of the search. CIT-DIR vehemently contended during the course of hearing that hon ble jurisdictional high court s decision in Gopal Lal Bhadruka 2012 (6) TMI 657 - ANDHRA PRADESH HIGH COURT supports the Revenue s case that a search assessment could very well be framed on altogether a new material which sees light of the day in the corresponding proceedings. We find no merit in the Revenue s arguments as their lordships decision is only applicable in a case wherein the department indeed comes across incriminating material at the time of search than in absence of any such material. We thus place our reliance on the case law considered in the CIT(A) s order (supra) to affirm the lower appellate findings under challenge. - Revenue appeal dismissed.

Summary

Issues:
1. Addition of sub-contract expenses based on seized material
2. Allowance of mining stock written off as expenses
3. Validity of assessment without incriminating material

Analysis:
1. The first issue raised in the appeal pertains to the addition of sub-contract expenses. The Revenue contended that the CIT(A) erred in deleting the addition, arguing that it should be based on material seized during the search. The Assessing Officer highlighted that some sub-contractors denied working for the assessee company. However, the ITAT upheld the CIT(A)'s decision, emphasizing that the assessment lacked incriminating material from the search, thereby supporting the deletion of the addition.

2. Moving on to the second issue, the CIT(A) allowed the expenses claimed as mining stock written off. The Revenue challenged this decision, asserting that the assessee failed to substantiate the claim as revenue expenses. During the hearing, the CIT-DR argued based on a high court decision supporting the framing of a search assessment on new material. However, the ITAT disagreed, stating that such a decision applies only when incriminating material is found during the search. Ultimately, the ITAT relied on the CIT(A)'s order and upheld the allowance of the expenses as mining stock written off.

3. Lastly, the ITAT addressed the overall validity of the assessment without incriminating material. The CIT(A) had quashed the assessment on this basis. The Revenue relied on a high court decision to support the framing of a search assessment on new material. However, the ITAT found no merit in this argument, emphasizing the necessity of incriminating material for such assessments. Consequently, the ITAT dismissed the Revenue's appeal, affirming the lower appellate findings based on the absence of incriminating material.

In conclusion, the ITAT upheld the CIT(A)'s decisions regarding the deletion of sub-contract expenses addition and the allowance of mining stock written off as expenses, emphasizing the importance of incriminating material in search assessments and dismissing the Revenue's appeal accordingly.