2022 (7) TMI 1156 - AT - Income Tax

Validity of the initiation of proceedings u/s 153C - HELD THAT - Admittedly, the impugned A.Y falls within the period of six years as envisaged in the provisions of section 153C of the Act and the AO has completed the assessment u/s 143(3) r.w.s. 153C - The basis of initiation of proceedings u/s 153C is the documents being provisional balance sheet of the assessee seized from the premises of Shri I. Shyam Prasad Reddy during the course of search at his premises on 18.7.2012. The satisfaction note was duly received by the Assessing Officer of the assessee from the AO of the searched person. Therefore, in our opinion, there is no infirmity or illegality in the order of the Assessing Officer in initiating the proceedings u/s 153C and the order of the learned CIT (A) in upholding the order u/s 153C. Accordingly, grounds raised by the assessee on this issue including the additional grounds are dismissed. Disallowance u/s 14A r.w. r. 8D - HELD THAT - We find the Finance Act, 2022 has drastically amended the provisions of section 14A w.e.f. 1.4.2022 and one of the Coordinate Bench of the Tribunal has held such amendment to be retrospective in nature. Therefore, considering the totality of the fact of the case and in the interest of justice, we deem it fit and proper to restore the issue to the file of the AO with a direction to adjudicate the issue afresh and in accordance with law after giving due opportunity of being heard to the assessee. We hold and direct accordingly. Grounds raised by the assessee on the issue of addition 14A are accordingly allowed for statistical purposes.

Summary

Issues Involved:
1. Validity of proceedings initiated under Section 153C of the Income Tax Act.
2. Disallowance under Section 14A of the Income Tax Act.

Issue-Wise Detailed Analysis:

1. Validity of Proceedings Initiated Under Section 153C:
The assessee challenged the initiation of proceedings under Section 153C, arguing that no incriminating material belonging to the assessee was found during the search. The proceedings were initiated based on provisional balance sheets seized from another individual's premises. The learned CIT (A) dismissed this challenge, noting that the documents seized were sufficient to initiate proceedings under Section 153C. The Tribunal upheld this decision, stating that the Assessing Officer had validly initiated proceedings under Section 153C based on the documents seized and the satisfaction note received from the Assessing Officer of the searched person. Therefore, the grounds challenging the validity of proceedings under Section 153C were dismissed.

2. Disallowance Under Section 14A:
The assessee contested the disallowance of Rs.6,11,88,863/- under Section 14A, arguing that no exempt income was earned on the investments. The learned CIT (A) upheld the disallowance, stating that the assessee had admitted to diverting business funds for non-core activities that yielded exempt income. The Tribunal found that the Assessing Officer had applied Section 14A read with Rule 8D to compute the disallowance and upheld the CIT (A)'s decision. However, considering a recent amendment to Section 14A by the Finance Act, 2022, which was deemed retrospective, the Tribunal restored the issue to the Assessing Officer for fresh adjudication. The Tribunal directed the Assessing Officer to re-evaluate the disallowance in light of the new provisions and after giving the assessee an opportunity to be heard.

Separate Judgments for Different Assessment Years:
For A.Y 2012-13 (ITA No.643/Hyd/2017), the Tribunal dismissed the grounds challenging the validity of proceedings under Section 153C and restored the issue of disallowance under Section 14A to the Assessing Officer for fresh adjudication.

For A.Y 2013-14 (ITA No.644/Hyd/2017), the Tribunal followed the same reasoning as for A.Y 2012-13, dismissing the grounds challenging the validity of proceedings under Section 153C and restoring the issue of disallowance under Section 14A to the Assessing Officer for fresh adjudication.

Conclusion:
Both appeals filed by the assessee were partly allowed for statistical purposes, with the validity of proceedings under Section 153C being upheld and the issue of disallowance under Section 14A being remanded back to the Assessing Officer for fresh adjudication.