2022 (8) TMI 680 - AT - Income Tax

Assessment u/s 153A - Deduction u/s 80IA - whether any incriminating was found in any particular order and all of the relevant years? - HELD THAT - We observe that for assessment year 2005-06, return of income was filed on 31-10-2005 declaring total income wherein deduction u/s 80-IA has been claimed. The regular assessment for the captioned year was also completed on 31-12-2007. Subsequently, a search action under section 132 of the Act was carried out at the premises of the assessee company and on 24-05-2010, disallowing the deduction claimed under section 80IA(4) - From the facts placed on record, we observe that there was no incriminating material found during the course of search on the basis of which deduction claimed under section 80IA(4) was disallowed by the Ld. Assessing Officer and also confirmed by Ld. CIT(Appeals). Similarly, for assessment year 2006-07, return of income was filed on 13-11-2006 declaring total income wherein deduction u/s 80-IA of Rs. 2,62,16,961/- has been claimed. The regular assessment for the captioned year was also completed on 22-12-2008. Subsequently, a search action under section 132 of the Act was carried out at the premises of the assessee company and on 24-05-2010, disallowing the deduction claimed under section 80IA(4)-. From the facts placed on record, we observe that there was no incriminating material found during the course of search on the basis of which deduction claimed under section 80IA(4) was disallowed by the Ld. Assessing Officer and also confirmed by Ld. CIT(Appeals). The Department has not been able to produce any material to suggest / substantiate that the assessment order was passed on the basis of any incriminating material found during the course of search. Therefore, in view of well settled proposition of law that completed assessment can be interfered by the Assessing Officer while making assessment u/s. 153A only on the basis of some incriminating material unearthed during the course of search documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made in the course of original assessment, we are of the considered view that in the instant facts, the Ld. CIT(A) has erred in facts and in law in upholding the additions for assessment years 2005-06 and 2006-07. Since we have set aside the assessment order on the issue of jurisdiction itself, we are not separately discussing the merits of the case.

Issues Involved:
1. Validity of order passed under section 153A read with section 143(3) of the Income Tax Act.
2. Disallowance of deduction claimed under section 80IA(4) for various infrastructure projects.
3. Determination of whether the assessee qualifies as a developer of infrastructure facilities.
4. Disallowance of administrative expenses.
5. Interpretation of provisions of section 80IA(4) in relation to "work contracts" vs. "development contracts."

Issue-wise Detailed Analysis:

1. Validity of Order Passed Under Section 153A r.w.s. 143(3):
The assessee challenged the validity of the assessment orders for the years 2005-06 and 2006-07, arguing that no incriminating material was found during the search that could justify the additions made. The Tribunal noted that the assessment for these years had already concluded and were unabated. It was emphasized that additions under section 153A r.w.s. 143(3) can only be made based on incriminating material found during the search, as supported by judicial precedents such as Pr. CIT v. Saumya Constructions and PCIT v. Meeta Gutgutia. The Tribunal concluded that the assessment orders were not based on any incriminating material found during the search but rather on a revision of the order following the insertion of a new explanation to section 80IA, which was not present at the time of the original assessment.

2. Disallowance of Deduction Claimed Under Section 80IA(4):
The assessee claimed deductions under section 80IA(4) for various infrastructure projects. The Assessing Officer disallowed these claims, arguing that the projects were "work contracts" rather than "development contracts." The Tribunal reviewed the details and found that the disallowance was not based on any fresh incriminating material found during the search. The Tribunal cited various judicial precedents, including the Gujarat High Court's decision in Pr. CIT v. Desai Construction (P.) Ltd., which held that in the absence of incriminating material, the Assessing Officer cannot interfere with the assessee's claim for deduction under section 80IA.

3. Determination of Whether the Assessee Qualifies as a Developer of Infrastructure Facilities:
The Commissioner of Income Tax (Appeals) held that the assessee was not a developer of infrastructure facilities but a contractor executing work contracts. The Tribunal, however, found that this determination was not based on any incriminating material found during the search. The Tribunal reiterated that completed assessments can only be reopened under section 153A if incriminating material is found during the search, which was not the case here.

4. Disallowance of Administrative Expenses:
For the assessment year 2006-07, the Commissioner of Income Tax (Appeals) confirmed the disallowance of Rs. 50,000 out of administrative expenses. The Tribunal did not separately discuss the merits of this disallowance, as the assessment order was set aside on the issue of jurisdiction itself.

5. Interpretation of Provisions of Section 80IA(4):
The Revenue argued that the assessee did not fulfill the conditions of section 80IA(4) and cited the Supreme Court's decision in M/s HAL, which distinguished between "work contracts" and "development contracts." The Tribunal found that the Assessing Officer's interpretation and subsequent disallowance were not based on any incriminating material found during the search. The Tribunal emphasized that the provisions of section 153A require the presence of incriminating material found during the search to justify any additions or disallowances in completed assessments.

Conclusion:
The Tribunal allowed the appeals of the assessee for the assessment years 2005-06 and 2006-07, setting aside the assessment orders on the issue of jurisdiction, as no incriminating material was found during the search. Consequently, the appeals of the Revenue were dismissed. The Tribunal's decision was pronounced in the open court on 10-08-2022.

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