2014 (2) TMI 810 - AT - Income Tax

Invalid notice under section 153A leads to deletion of additions under sections 68 and 14A.

Shri Govind Agarwal Versus ACIT

Shri Govind Agarwal Versus ACIT - TMI Issues Involved:1. Validity of the notice issued under section 153A of the Income Tax Act.2. Addition on account of artificially inflated investment in house.3. Disallowance under section 14A of the Income Tax Act.Detailed Analysis:1. Validity of the Notice Issued Under Section 153A:The assessee argued that the notice under section 153A was invalid as no incriminating material was found during the search, which is a prerequisite for issuing such a notice. The CIT (A) dismissed this argument, stating that the assessment under section 143(1)(a) cannot be treated as a completed assessment and relied on the Supreme Court judgment in DCIT vs. Rajesh Javeri Stock Brokers. The CIT (A) further argued that the AO is statutorily obligated to issue notice for all six assessment years prior to the search date, regardless of the presence of incriminating material.The Tribunal, however, agreed with the assessee, citing multiple judicial precedents, including the Rajasthan High Court judgment in Jai Steel (India) Ltd vs. ACIT, which held that in the absence of incriminating material, the completed assessment cannot be disturbed. The Tribunal concluded that the notice under section 153A was invalid as the additions were not based on any incriminating material found during the search.2. Addition on Account of Artificially Inflated Investment in House:The AO made an addition of Rs. 31,33,007/- on the grounds that the assessee failed to furnish evidence supporting the expenditure claimed for the construction of a residential house. The CIT (A) upheld this addition, relying on the valuation report obtained during the search.The Tribunal found that the valuation report was merely an opinion and not incriminating material. The Tribunal noted that the AO did not use this report for making the addition and that the addition was based on presumptions rather than evidence. The Tribunal concluded that such additions are unsustainable in law, especially in assessments made under section 153A read with section 143(3) of the Act.3. Disallowance Under Section 14A:The AO disallowed Rs. 23,31,469/- under section 14A read with Rule 8D, which the CIT (A) directed to be recomputed. The Tribunal observed that the disallowance was made without any incriminating material and was based on the regular books of accounts.The Tribunal reiterated that in the absence of incriminating material, no addition could be made in a completed assessment under section 153A. The Tribunal cited various judicial precedents, including the Special Bench decision in All Cargo Global Logistics Ltd vs. DCIT, which held that additions in completed assessments under section 153A could only be made based on incriminating material.Conclusion:The Tribunal allowed the legal ground raised by the assessee, holding that the notice under section 153A was invalid as the additions were not based on any incriminating material. Consequently, the additions made under sections 68 and 14A were deleted. The other grounds on the merits of the additions were dismissed as academic.Decision:Both appeals of the assessee were partly allowed. The order was pronounced in the open court on January 10, 2014.