2014 (10) TMI 216 - AT - Income Tax

Tribunal orders reassessment of tax case in line with court ruling

DCIT, Central Circle- 21, New Delhi Versus M/s. Devi Dayal Petro Chemicals Pvt. Ltd.

The Tribunal set aside the case to the Assessing Officer for re-examination in line with the Delhi High Court's ruling in SSP Aviation Ltd. The AO was ... Search and Seizure u/s 132 – order u/s 153C r.w. section 153A - Held that:- The matter is set aside and restored to the file of the AO for re-examination of the issue in the light of the decision of Hon'ble Jurisdictional High Court in SSP AVIATION LTD. [2012 (4) TMI 335 - DELHI HIGH COURT] i.e., the AO will first verify the years to which the seized documents belonged - There would be no justification for continuation of the proceedings under Section 153C to which the seized documents do not belong – AO will drop the proceedings initiated u/s 153 of the years to which the seized documents do not belong - For the year to which the seized documents belonged, he will verify whether the transaction reflected by the seized documents are duly accounted for in the books of account - If the transactions are duly accounted for in the books of account, as contended by the learned counsel, the AO will drop the proceedings initiated u/s 153C - if for the year to which the seized documents belonged, the transaction reflected by the seized documents is not recorded in the books of account, the proceedings u/s 153C will continue and the AO will make the assessment afresh in accordance with law - the Revenue’s appeals do not require any adjudication and they are also deemed to be allowed for statistical purposes - The AO will proceed to make the assessment afresh only in the year where proceedings u/s 153C can validly continue. Issues Involved:1. Legality and jurisdiction of proceedings initiated under Section 153C of the Income Tax Act, 1961.2. Validity of additions made by the Assessing Officer (AO) based on unexplained purchases, disallowance of expenses, and increase in share capital.3. Rejection of book results and transactions through the bank.4. Application of interest under Sections 234A and 234B of the Income Tax Act, 1961.Detailed Analysis:1. Legality and Jurisdiction of Proceedings Initiated Under Section 153C:The Assessee challenged the proceedings initiated under Section 153C, claiming they were illegal, without jurisdiction, and against the principles of natural justice. The Tribunal noted that the documents seized during the search did not pertain to the assessment years in question (2003-04 to 2008-09) and were already accounted for in the books of accounts. The Tribunal referred to the Delhi High Court's decision in SSP Aviation Ltd. v. Deputy Commissioner of Income Tax, which stated that proceedings under Section 153C should be confined to the additions and disallowances based on material found during the search. The Tribunal set aside the matter to the AO to verify if the seized documents were related to the assessment years and whether they were accounted for in the books. If the documents were accounted for and did not relate to the assessment years, the proceedings under Section 153C should be dropped.2. Validity of Additions Made by the AO:The Revenue's appeal involved three main additions made by the AO:- Unexplained purchases amounting to Rs. 35,08,525 under Section 69C.- Disallowance of 50% of expenses claimed, amounting to Rs. 1,64,550.- Addition of Rs. 98,000 on account of an increase in share capital under Section 68.The Tribunal noted that the CIT(A) had directed the AO to only consider the peak of financial transactions rather than the entire amounts. However, since the Tribunal set aside the matter to the AO for re-examination of the seized documents, the merits of these additions were not adjudicated. The AO was instructed to reassess the additions based on the validity of the proceedings under Section 153C.3. Rejection of Book Results and Transactions Through Bank:The Assessee argued that the CIT(A) erred in rejecting the book results and transactions through the bank, claiming the entries were artificial and not reflective of actual business transactions. The Tribunal instructed the AO to verify if the transactions reflected by the seized documents were duly accounted for in the books of accounts. If the transactions were accounted for, the proceedings should be dropped, otherwise, the AO should reassess the matter.4. Application of Interest Under Sections 234A and 234B:The Assessee contended that the interest charged under Sections 234A and 234B was wrongly and excessively charged. The Tribunal did not specifically address this issue but implied that the reassessment by the AO should consider the correct application of interest based on the revised assessment.Conclusion:The Tribunal set aside the entire matter to the AO for re-examination in light of the Delhi High Court's decision in SSP Aviation Ltd. The AO was instructed to verify the relevance and accounting of the seized documents and reassess the additions accordingly. The appeals and cross objections were allowed for statistical purposes, and the AO was directed to proceed with a fresh assessment where valid proceedings under Section 153C could continue.