2016 (7) TMI 1211 - HC - Income Tax

Court Upholds ITAT Decision on Tax Appeals under Section 153A

The court upheld the ITAT's decision, dismissing tax appeals and emphasizing that the AO cannot disturb finalized assessments under section 153A without ... Claim of deduction u/s 80IA in the reassessment u/s 153A as there was no incriminating document found during the search - The assessee contested such claim mainly on the ground that no incriminating material was found during the search which would enable the Assessing Officer to reexamine assessee's claim for deduction under section 80IA, which was part of the original assessment proceedings and such assessments had abated. The Tribunal upheld the assessee's contention referring to the decision of Bombay High Court in case of Continental Warehousing Corporation (Nhava Sheva) Ltd., [2015 (5) TMI 656 - BOMBAY HIGH COURT] - Held that:- this Court in case of Pr. Commissioner of Incometax4 v. Saumya Construction Pvt. Ltd. [2016 (7) TMI 911 - GUJARAT HIGH COURT], had also considered the similar issue. Decision of tribunal upheld - Decided against the Revenue. Issues Involved:1. Justification of ITAT's decision on disallowance of deduction claimed under section 80IA in proceedings under section 153A.2. Scope of additions in reassessment under section 153A concerning issues found during the search.3. ITAT's failure to discuss the merit of disallowance under section 80IA(4) in light of the Explanation to section 80IA.4. Consideration of precedents set by High Court of Karnataka and Delhi High Court.Issue-wise Detailed Analysis:1. Justification of ITAT's Decision on Disallowance of Deduction Claimed under Section 80IA in Proceedings under Section 153A:The primary issue revolves around whether the ITAT was justified in holding that the action of the Assessing Officer (AO) to disallow the deduction claimed under section 80IA in proceedings under section 153A was invalid due to the absence of incriminating documents found during the search. The respondent assessee was subjected to search operations, and the AO disallowed deductions of Rs. 61.82 lacs and Rs. 47.42 lacs for the assessment years 2004-05 and 2005-06, respectively, under section 80IA. The assessee contested this on the grounds that no incriminating material was found during the search to justify re-examining the deduction claim, which was part of the original assessment proceedings that had abated. The Tribunal upheld the assessee's contention, referring to the Bombay High Court's decision in Continental Warehousing Corporation (Nhava Sheva) Ltd., which stated that the AO could not disturb finalized assessments unless materials gathered during section 153A proceedings indicated that the reliefs granted were contrary to the facts unearthed during the search.2. Scope of Additions in Reassessment under Section 153A Concerning Issues Found During the Search:The second issue examines whether the ITAT was correct in holding that in reassessment under section 153A, for unabated proceedings, additions should be restricted to issues found during the search and no action is permissible regarding escaped income unearthed during section 153A proceedings. The court referred to the Bombay High Court's interpretation, which clarified that section 153A allows the AO to assess or reassess the total income for six assessment years preceding the search. However, it emphasized that additions or disallowances could only be based on material collected during the search. If no incriminating material is found, the earlier assessment must be reiterated.3. ITAT's Failure to Discuss the Merit of Disallowance under Section 80IA(4) in Light of the Explanation to Section 80IA:The third issue pertains to whether the ITAT erred by not discussing the merits of the disallowance under section 80IA(4) in view of the Explanation to section 80IA inserted retrospectively from 01.04.2000. The court did not delve into this issue independently, as it was consequential to the primary issue of whether the AO could disallow deductions without incriminating material found during the search.4. Consideration of Precedents Set by High Court of Karnataka and Delhi High Court:The fourth issue questions whether the ITAT failed to appreciate the precedents set by the High Court of Karnataka in M/s Canara Housing Development Company and the Delhi High Court in Anil Bhatia. The court noted that similar issues had been considered by the Gujarat High Court in Pr. Commissioner of Income-tax-4 v. Saumya Construction Pvt. Ltd., which upheld that additions under section 153A should be based on incriminating material found during the search. The court emphasized that the assessment under section 153A should relate to the search or requisition, and any additions must be connected to incriminating material revealing undisclosed income.Conclusion:In conclusion, the court dismissed the tax appeals, reiterating that in the absence of incriminating material found during the search, the AO could not disturb the finalized assessment under section 153A. The court upheld the ITAT's decision and emphasized that additions or disallowances in reassessment under section 153A must be based on material collected during the search, aligning with the legal precedents set by various high courts.