2022 (10) TMI 163 - AT - Income Tax

Scope of appeal before CIT(A) after revision order u/s 263 - Revision u/s 263 AND Legality or otherwise of assessment order passed by the AO u/s.143(3) r.w.s.153C - Merging of two proceedings - Legality of assessment order passed by the AO and consequent additions made thereon in absence of incriminating material found as a result of search - additional grounds filed by the assessee challenging validity of assessment proceedings and consequent addition made thereon - HELD THAT - The assessment proceedings in pursuant to search action u/s.132 of the Act, become final and reached finality. Further, the case has been subjected to 263 proceedings by the PCIT. The PCIT has taken up 263 proceedings on certain issues and set aside the assessment order passed by the AO u/s.143(3) r.w.s.153C of the Act, for the AYs 2003-04 to 2007-08 with a direction to AO to re-do the assessment on the issue questioned in the 263 proceedings. We do not know, whether the assessee has challenged 263 order passed by the PCIT or not. AO has passed consequential assessment order u/s.143(3) r.w.s.263 of the Act, for all assessment years and has made additions to the issues questioned by the PCIT in 263 proceedings. The assessee has challenged the order passed by the AO u/s.143(3) r.w.s.263 of the Act, before the First Appellate Authority and challenged various additions made by the AO and not challenged legality of assessment order passed by the AO. The Ld.CIT(A) dismissed the appeal filed by the assessee ex-parte for non-appearance. The assessee carried the matter in further appeal before the ITAT and the Tribunal 2016 (4) TMI 1431 - ITAT CHENNAI set aside the appeals to the file of the Ld.CIT(A) with a direction to re-consider the issues. At this stage, in the second round of litigation, the assessee has filed petition for admission of additional grounds by taking a legal ground challenging validity of additions made by the AO in the assessment framed u/s.143(3) r.w.s.153C of the Act, on the ground that additions made by the AO does not have any reference to incriminating material found as a result of search. We are not going into the aspects whether additions made by the AO are supported by any incriminating material found as a result of search, or not, but we are only on the question whether the assessee can take a legal issue in this round of proceedings or not. In our considered view, the assessee cannot take this legal issue challenging validity of assessment proceedings and consequent additions made by the AO in absence of incriminating material found as a result of search, because, the present proceedings pertains to assessment order passed in pursuant to directions of the PCIT u/s.263 of the Act. Since, pending proceedings before the Ld.CIT(A) is with reference to additions made in pursuant to directions of the PCIT, in our considered view, the assessee can only challenge additions made by the AO in pursuant to directions of the PCIT in 263 proceedings on merits, but the assessee cannot question the legality or otherwise of assessment order passed by the AO u/s.143(3) r.w.s.153C of the Act, in pursuant to search action u/s.132 of the Act. Two proceedings are independent and different. The first proceedings of assessment order passed by the AO in pursuant to search action is altogether a different proceedings which has reached finality when the assessee does not challenge assessment order passed by the AO before the First Appellate Authority. The present proceedings pending before the First Appellate Authority, is in pursuant to directions of the PCIT u/s.263 of the Act, and is altogether a different proceedings and in this proceedings, the assessee cannot question the legality of assessment order passed in pursuant to search action u/s132 of the Act. Therefore, we are of the considered view that the Ld.CIT(A) has rightly rejected additional grounds filed by the assessee challenging validity of assessment proceedings and consequent addition made thereon. Hence, we are inclined to uphold the findings of the Ld.CIT(A) and dismiss the appeals filed by the assessee for the AYs 2003-04 to 2007-08. Appeals filed by the assessee are dismissed.

Issues Involved:
1. Condonation of delay in filing the appeal.
2. Admission of additional grounds by the Commissioner of Income Tax (Appeals) [CIT(A)].
3. Legality of assessment orders passed under Section 143(3) read with Section 153C of the Income Tax Act.
4. Validity of additions made by the Assessing Officer (AO) in the absence of incriminating material found during the search.

Detailed Analysis:

1. Condonation of Delay:
The appeals filed by the assessee were barred by limitation. The assessee filed a petition for condonation of delay, explaining the reasons for the delay. The Tribunal, after hearing both sides and considering the petition, found that the reasons given by the assessee constituted a "reasonable cause" under the Act. Therefore, the delay was condoned, and the appeals were admitted for adjudication.

2. Admission of Additional Grounds by CIT(A):
The assessee raised additional grounds before the CIT(A) during the second round of proceedings, challenging the validity of the assessment order passed under Section 143(3) read with Section 153C. The CIT(A) rejected these additional grounds, stating that the appellant had not raised these grounds during the initial appeal proceedings and had not provided any credible explanation for this omission. The CIT(A) cited the Supreme Court's decision in National Thermal Power Co. Ltd. v. CIT, emphasizing that additional grounds can be admitted if they are bona fide and could not have been raised earlier for good reasons. The CIT(A) concluded that the appellant did not satisfy these criteria.

3. Legality of Assessment Orders under Section 143(3) read with Section 153C:
The assessee did not initially challenge the assessment orders passed under Section 143(3) read with Section 153C, which were based on a search conducted under Section 132. These orders included additions for unexplained cash deposits and undisclosed investments. The assessee accepted these orders and did not appeal against them. The Principal Commissioner of Income Tax (PCIT) later revised these orders under Section 263, directing the AO to re-assess certain issues. The AO complied, and the assessee appealed these revised orders. The Tribunal noted that the initial assessment orders had reached finality as the assessee did not challenge them at the appropriate time.

4. Validity of Additions in Absence of Incriminating Material:
The assessee argued that the additions made by the AO were not based on any incriminating material found during the search. The Tribunal acknowledged that this legal ground was supported by judicial precedents. However, it emphasized that the current proceedings were related to the assessment orders passed under Section 143(3) read with Section 263, following the PCIT's directions. The Tribunal held that the assessee could only challenge the additions made in compliance with the PCIT's directions and not the legality of the original assessment orders passed under Section 143(3) read with Section 153C. The Tribunal concluded that the CIT(A) correctly rejected the additional grounds challenging the validity of the assessment proceedings and the consequent additions.

Conclusion:
The Tribunal upheld the CIT(A)'s decision to reject the additional grounds filed by the assessee and dismissed the appeals for the assessment years 2003-04 to 2007-08. The Tribunal emphasized the independence of the proceedings under Section 263 from the original assessment proceedings under Section 143(3) read with Section 153C. The appeals filed by the assessee were dismissed, and the order was pronounced on September 28, 2022, in Chennai.

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