2017 (2) TMI 1212 - HC - Income Tax

Additions under Sections 153A/153C and 80HHC invalid without incriminating material in search assessments

The HC held that additions to income and disallowance of deductions under Sections 153A/153C and 80HHC were not justified as no incriminating material was ... Validity of assessment u/s 153A/153C - additions to income - disallowance of deductions under Section 80HHC - as per revenue none of the provisions confine the enquiry of the AO to evaluating incriminating materials - non-obstante clause in Section 153A together with Section 158BD - Held that:- We could not found that there is any incriminating material referred by the AO which is found during the course of search for making these additions. The non-obstante clause, in the opinion of the Court, was necessary, given that there is a departure from the pre-existing provisions, which applied for the previous years and had a different structure where two sets of assessment orders were made by the AO during block periods. With the unification of assessment years for the block period, i.e. only one assessment order for each year in the block period, it was necessary for an overriding provision of the kind actually adopted in Section 153A. But for such a non-obstante clause, the Revenue could possibly have faced hurdles in regard to unadopted/current assessment years as well as reassessment proceedings pending at the time of the search in respect of which proceedings were to be completed under Sections 153A/153C. - Decided against revenue Issues:1. Disallowance under Section 80HHC of the Income Tax Act for AYs 2000-01 and 2001-02.2. Disallowance of standard deduction and unexplained investment.3. Interpretation of the non-obstante clause in Section 153A along with Section 158BD.Analysis:1. The assessee, an individual, was subjected to a search which led to the disallowance of deductions under Section 80HHC for AYs 2000-01 and 2001-02. The Assessing Officer (AO) disallowed deductions and added unexplained investments based on the search findings. However, the CIT(A) granted relief, stating that no incriminating material was found during the search. The ITAT upheld the CIT(A)'s decision, emphasizing that no additions can be made without any incriminating material, as per the decision in Kabul Chawla v. CIT. The Court affirmed the ITAT's decision, highlighting the necessity of the non-obstante clause in Section 153A for unified assessments during block periods.2. The Revenue contended that the non-obstante clause in Section 153A and Section 158BD allows assessments beyond 'undisclosed income,' arguing that the AO's inquiry is not limited to incriminating materials. The Court referenced Kabul Chawla v. CIT, stating that the non-obstante clause was crucial due to changes in assessment procedures for block periods. Without this clause, the Revenue might have faced challenges in ongoing assessments and reassessment proceedings during searches. Consequently, the Court upheld the ITAT's decision, dismissing the Revenue's appeals based on the interpretation of the non-obstante clause and the necessity for unified assessments under Section 153A.This detailed analysis covers the issues of disallowances under Section 80HHC, standard deductions, unexplained investments, and the interpretation of the non-obstante clause in Section 153A, providing a comprehensive understanding of the judgment's key points and legal implications.