2014 (11) TMI 603 - AT - Income Tax

Tribunal rules AO lacked jurisdiction under Section 153C, no incriminating material found. Assessments cannot be disturbed without it.

Trishul Hi-Tech Industries, Kolkata Versus DCIT., Central-XI, Kolkata

The Tribunal ruled in favor of the assessee, holding that the Assessing Officer (AO) lacked jurisdiction to pass an order under Section 153C of the Income ... Proceedings u/s 153C – Held that:- Assessment order u/s 143(3) of the Act was passed on 31.03.2006 by making various disallowances and additions - the AO framed the assessment order u/s 153C/143(3) of the Act despite the fact that no incriminating material was found during the course of search - This aspect is evident by the fact that the AO framed the impugned assessment order u/s 153C/143(3) of the Act by taking the total income arrived at in the original assessment order u/s 143(3)/154 of the Act dated 02.08.2006 which included various disallowance and additions - order u/s 143(3) of the Act has been passed earlier and the issue was further adjudicated before the higher authorities and accordingly the assessment for assessment year under dispute was not pending on the date of initiation of action u/s 153C of the Act - the hand over of the materials which belonged to the assessee was taken much later after passing of assessment order us 143(3) of the Act. Where none of the assessments were pending on the date of search the AO is precluded from re-agitating issues u/s 153C of the Act which have attained finality in original assessment dehorse any incriminating material found during the course of search - the only action left for the AO in that respect as no addition was conceived on incriminating materials is to drop the proceedings - under the provision of Act only the proceedings which is pending shall get abated - any proceedings that has reached its finality shall not be disturbed unless there are materials found, indicating existence of income embedded in incriminating documents - No incriminating material has been proved to have been found in the course of search which belonged to the assessee warranting the re-assessment u/s 153C of the Act for the AY. The person who is searched u/s 153A of the Act can be assessed only on the basis of incriminating material found and the other person who is assessed u/s 153C of the Act in connection with the same search should be assessed de hors any incriminating material - the provision of section 153C(1) was amended to obviate practical difficulties which arose in its interpretation - To put it simply this amendment to proviso to section 153C(1) of the Act debars the AO from making any assessment dehorse any incriminating material found during the search - assessment in the AYs have been completed u/s 143(3) of the Act - the assessment for the concerned assessment year does not abate - assessment u/s 153C of the Act in these cases dehorse any incriminating material is not sustainable –thus, the order is set aside – decided in favour of assessee. Issues Involved:1. Jurisdiction of the AO under Section 153C of the Income Tax Act, 1961.2. Denial of deduction claimed under Section 80IB of the Income Tax Act, 1961.3. Disallowance of interest by the AO.Issue-wise Detailed Analysis:1. Jurisdiction of the AO under Section 153C of the Income Tax Act, 1961:The primary contention of the assessee was that the AO lacked jurisdiction to pass an order under Section 153C for the concerned assessment year because no incriminating material was found during the search. The assessee argued that the original assessment order under Section 143(3) was passed on 31-03-2006 and was already under litigation before higher authorities. The AO framed the impugned assessment order under Section 153C/143(3) by taking the total income from the original assessment order, which included the denial of deduction under Section 80IB. The assessee contended that since the assessment for the disputed year was not pending on the date of the search, the AO's action was contrary to the second proviso to Section 153A, which states that only pending assessments shall abate.The Tribunal agreed with the assessee, noting that no incriminating material was found during the search for the relevant assessment years. The Tribunal held that the AO is precluded from re-agitating issues under Section 153C that have attained finality in the original assessments unless there are incriminating materials found during the search. The Tribunal cited precedents, including the case of LMJ International Limited vs. DCIT, which held that assessments cannot be disturbed under Section 153C without incriminating material. The Tribunal concluded that the assessment under Section 153C without incriminating material was not sustainable and quashed the orders of the authorities below on this ground.2. Denial of Deduction Claimed under Section 80IB of the Income Tax Act, 1961:The assessee challenged the denial of deduction under Section 80IB on account of transport subsidy and crane hire charges. The assessee argued that the CIT(A) upheld the AO's action without considering the pith and substance of the enactment. However, since the Tribunal quashed the assessment under Section 153C on jurisdictional grounds, it did not adjudicate on the merits of the denial of deduction under Section 80IB, as it became only of academic interest.3. Disallowance of Interest by the AO:In the Revenue's appeal, the AO had disallowed interest amounting to Rs. 7,53,440 by holding that huge interest-free advances were given to the sister concern. The AO noted that in the regular assessment, the nature and purpose of advances were not examined. The CIT(A) deleted the addition, holding that the matter had attained finality in the regular assessment and no incriminating materials were found during the search.The Tribunal upheld the CIT(A)'s order, reiterating that no assessment under Section 153C can be made without incriminating material for the assessment years where assessments have already been completed. Therefore, the Tribunal dismissed the Revenue's appeal.Conclusion:The Tribunal allowed the assessee's appeals on the ground of lack of jurisdiction under Section 153C due to the absence of incriminating material and dismissed the Revenue's appeal, upholding the CIT(A)'s deletion of the interest disallowance. The Tribunal's decision emphasized the necessity of incriminating material for initiating proceedings under Section 153C and supported the view that completed assessments should not be disturbed without such material.