2016 (6) TMI 50 - AT - Income Tax

ITAT allows appeal, deems assessment invalid, rendering deduction disallowance infructuous.

The ITAT allowed the appeal, holding the assessment under sec. 153A/143(3) invalid due to the absence of incriminating material, thus rendering the ... Validity of assessment under Section 153A in absence of incriminating material - Abatement of pending assessments on date of search - Reassessment and reiteration of completed assessments under Section 153A - Requirement of nexus between seized material and additions under Section 153A - Deduction under Section 80IBValidity of assessment under Section 153A in absence of incriminating material - Abated assessments - Reiteration of completed assessment in absence of incriminating material - Deduction under Section 80IB - Whether the assessment framed under Section 153A/143(3) is valid where earlier assessments (completed before the date of search) had allowed deduction under Section 80IB and no incriminating material was found during the search. - HELD THAT: - The Tribunal found that completed assessments under Section 143(3) and reassessments under Section 147/143(3) had allowed the claimed deduction under Section 80IB prior to the search dated 10.2.2010, and that no incriminating material was unearthed during the search which could justify interference with those completed assessments. Relying on the legal position summarized by the Delhi High Court in Kabul Chawla (paras. reproduced), the Tribunal noted that while Section 153A requires issuance of notice and permits fresh assessment for the six years preceding the relevant year, completed assessments can be interfered with under Section 153A only on the basis of incriminating material found in the search or other material connected thereto. In absence of any such material, the Tribunal held that the assessment framed under Section 153A/143(3) which disallowed the Section 80IB deduction was not valid and must be quashed as void ab initio; consequently the substantive disallowance became infructuous. [Paras 7, 8]Assessment under Section 153A/143(3) quashed as void ab initio for lack of incriminating material; issue decided for the assessee and grounds allowed.Final Conclusion: The appeal is allowed: the assessment framed under Section 153A/143(3) is quashed as void ab initio in absence of incriminating material found during search, rendering the disallowance of the Section 80IB deduction infructuous. Issues:Disallowance of deduction under sec. 80IB of the Income-tax Act, 1961 in an assessment made under sec. 153A/143(3) of the Income-tax Act, 1961.Analysis:Issue 1: Disallowance of deduction under sec. 80IBThe assessee challenged the first appellate order questioning the sustenance of a disallowance of &8377; 4,91,404 claimed under sec. 80IB of the Income-tax Act, 1961. The contention was that the disallowance was made without incriminating material found during a search and abatement of assessments made earlier. The Learned AR cited a High Court case to support the argument that even the issuance of notice under sec. 153A might be invalid. The authorities below had disallowed the deduction on scrap sales, arguing it was not from the manufacturing of DG sets. However, the legal issue of the validity of proceedings under sec. 153A and the subsequent assessment was raised for the first time before the ITAT. The ITAT allowed this additional ground for adjudication. It was established that no incriminating material was found during the search, and assessments allowing the deduction were made before the search date. The ITAT relied on a High Court decision to conclude that the assessment under sec. 153A/143(3) without incriminating material was invalid, quashing the assessment as void-ab-initio and ruling in favor of the assessee.Conclusion:The ITAT allowed the appeal, holding the assessment under sec. 153A/143(3) invalid due to the absence of incriminating material, thus rendering the disallowance of the claimed deduction under sec. 80IB of the Act infructuous. The judgment was based on the legal principles outlined in a High Court decision, ultimately deciding in favor of the assessee.