2016 (8) TMI 1132 - AT - Income Tax

Tribunal overturns Assessing Officer, deems unjustified additions; allows reasonable notional rent for pending assessment year.

The Tribunal held that additions made by the Assessing Officer under Section 153A without incriminating material were unjustified for the assessment years ... Assessment u/s 153A - Held that:- As in AY 2009-10 original return u/s 139(1) was filed on 30.09.2009 time limit for issue of notice u/s.143(2) was expired 30.09.2010. Search took place on 10.01.2011. It is clear from the above dates that assessment for AY 2009-10 was not pending as on the date of search. Furthermore no incrementing material was found during the course of search warranting the addition of ₹ 75,600/- made on account of notional interest. Following the propositions discussed herein above we do not find any merit in the action of AO for making addition in respect of completed assessments, without any incrementing material found during course of search. In the net result, the appeal filed by the assessee for A.Y.2008-09 & 2009- 2010 are allowed. Addition on account of notional rent - Held that:- We found that in the A.Y. 2009-10 AO has made addition of notional rent by taking estimated rental value of shop at Nalasopara at ₹ 3,000/- per month. As the value has been taken by AO in the AY 2009-10 at ₹ 3,000 per month, it would be reasonable to take value at 10% higher in the A.Y.2010-2011. Accordingly we direct the AO to make addition on account of estimated value of shop at Nalashopara by taking the value at ₹ 3,300/- per month. We direct accordingly. Issues Involved:1. Addition made under Section 153A read with Section 143(3) without incriminating material.2. Validity of addition of notional rent in absence of pending assessments.Issue-Wise Detailed Analysis:1. Addition Made Under Section 153A Read with Section 143(3) Without Incriminating Material:The primary issue revolves around whether additions can be made under Section 153A read with Section 143(3) of the Income Tax Act, 1961, when no incriminating material was found during the search, and the assessments were not pending. The Assessee contended that since the assessments for the years in question were completed and not abated, no additions could be made without incriminating material. This view is supported by various judicial precedents, including decisions in All Cargo Global Logistics [374 ITR 645 (Bom)], CIT v. Kabul Chawla [380 ITR 573 (Del)], and others.The Tribunal noted that the addition of Rs. 75,600 on account of notional rent had already been considered in the original assessment under Section 143(3). Since no incriminating material was found during the search, the Assessing Officer (AO) was not justified in making the addition under Section 153A. The Tribunal referenced the Hon'ble Bombay High Court's judgment in CIT vs. Continental Warehousing Corporation (Nhava-Sheva) 58 Taxmann.Com 78 (Bom), which held that no addition could be made in respect of completed assessments if no incriminating material was found during the search.The Tribunal further cited the Hon'ble Delhi High Court's decision in CIT(Central)-III vs. Kabul Chawla, which summarized that in the absence of any incriminating material, completed assessments can only be reiterated, and additions can only be made in abated assessments or reassessments based on seized material.2. Validity of Addition of Notional Rent in Absence of Pending Assessments:For the assessment years 2008-09 and 2009-10, the Tribunal found that the original returns were filed, and the assessments were completed before the search took place. Since the assessments were not pending and no incriminating material was found during the search, the Tribunal held that the AO was not justified in making additions under Section 153A. The Tribunal relied on various judicial precedents, including the Hon'ble Bombay High Court's decision in Murli Agro Products Ltd., which clarified that completed assessments could not be disturbed under Section 153A unless new incriminating material was found during the search.Conclusion for Assessment Years 2008-09 and 2009-10:The Tribunal concluded that the additions made by the AO were beyond the scope of Section 153A as no incriminating material was found during the search. Therefore, the Tribunal directed the AO to delete the additions for these assessment years, allowing the appeals of the Assessee.Issue for Assessment Year 2010-11:For the assessment year 2010-11, the Tribunal noted that the assessment was pending as of the date of the search. Therefore, the proposition regarding no addition in the absence of incriminating material was not applicable. However, the Tribunal directed the AO to make a reasonable addition on account of notional rent by taking the estimated rental value with a 10% increase from the previous year, resulting in an addition of Rs. 3,300 per month.Conclusion for Assessment Year 2010-11:The appeal for the assessment year 2010-11 was allowed in part, with the Tribunal directing a revised addition based on a reasonable estimate of notional rent.Final Order:The Tribunal pronounced the order on 24/08/2016, allowing the appeals for the assessment years 2008-09 and 2009-10, and partially allowing the appeal for the assessment year 2010-11.