2023 (8) TMI 1259 - AT - Income Tax

Assessment u/s 153A - unabated assessment year reopened/ reassessed - HELD THAT - As mentioned elsewhere a search and seizure operation was conducted on 14.11.2011 and, therefore, the impugned assessment year is unabated assessment year and, therefore, such unabated assessment can be reopened/ reassessed only on the basis of some incriminating material found at the time of search as held in the case of Abhisar Buildwell Private Limited 2023 (4) TMI 1056 - SUPREME COURT since the impugned assessment is devoid of any incriminating material found at the time of search the assessment order deserves to be quashed. Since the assessment order has been quashed we do not find any merit in any claim of the assessee and we also do not find it necessary to dwell into the merits of the claim.

Summary

Issues involved:
The issues involved in the judgment are:
1. Treatment of sales tax subsidy/incentive as capital receipt under the Income Tax Act, 1961.
2. Disallowance made under section 14A of the Act without incriminating material.
3. Charging of interest under sections 234A, 234B, and 234D of the Act.

Issue 1: Treatment of sales tax subsidy/incentive as capital receipt:
The appellant contended that the sales tax subsidy/incentive amounting to Rs. 22.63 crores should be treated as a capital receipt not liable to tax under the Income Tax Act, 1961. The CIT(A) rejected this claim stating that the appellant had not shown the amount as a capital receipt in earlier years, and it was not accounted for in the books of account or tax audit report. The appellant could have made this claim by filing a revised return of income under section 139(5) or in response to a notice under section 153A of the Act. The Tribunal partly allowed the appeal, emphasizing the need for incriminating material for reopening assessments in unabated years.

Issue 2: Disallowance under section 14A without incriminating material:
The CIT(A) confirmed the disallowance made by the assessing officer under section 14A of the Act without any incriminating material found during the search conducted in the case of the appellant. The appellant argued that the disallowance was computed without recording any finding on why the claim of no expenditure to earn exempt income was incorrect. The Tribunal found the disallowance incorrect as it included investments on which no exempt income was earned. The CIT(A) directed the assessing officer to compute the disallowance based on 0.5% of the average value of investments, excluding investments in growth-oriented mutual funds.

Issue 3: Charging of interest under sections 234A, 234B, and 234D:
The CIT(A) confirmed the action of the assessing officer in charging interest under sections 234A, 234B, and 234D of the Act. The appellant's representative was heard, and after perusing the case records and relevant evidences, the Tribunal considered Rule 18(6) of the ITAT Rules. The Tribunal partially allowed the appeal, highlighting the importance of incriminating material for reopening assessments in unabated years.