2017 (9) TMI 1599 - AT - Income Tax

Tribunal quashes tax notices & assessments; assessee wins on jurisdictional grounds

The Tribunal quashed the notices issued under Section 153A and the consequent assessments for the assessment years 2004-05 to 2008-09 due to the absence ... Assumption of jurisdiction u/s 153A - no search action has been carried out on the assessee - Held that:- It is clear from the perusal of the provisions of section 153A that notice u/s 153A can only be issued where a search is initiated u/s 132 of the Act or books of account or other documents other documents are requisitioned under section 132A after the 31st day of May, 2003. Thus the AO has power to issue notice to such person requiring him to furnish return of income in respect of each assessment year falling within six assessment years falling immediately preceding assessments relevant to the previous year in which the search is conduced or requisition is made. Therefore, it is clear that for the purpose of assumption and exercise of powers u/s 153A of the Act in case of a person, the initiation of search in terms of section 132 of the Act or 132A of the Act on the said persons is mandatory and therefore whether there is no initiation of search as contemplated u/s 132 of the Act , the fundamental conditions for issuance of notice u/s 153A is not fulfilled. Thus, the person in respect of whom the search is initiated u/s 132 of the Act is the same persons against whom the notice is to be issued u/s 153A of the Act. In view of this legal position , we are of the considered view that since no search has been initiated u/s 132 of th4e Act in the case of assessee ,therefore notice issued u/s 153A of the Act is without jurisdiction and the consequent assessment so framed u/s 143(3) r.w.s 153Á of the Act was also void ab-initio - Decided in favour of assessee. Issues Involved:1. Jurisdiction of the AO under Section 153A of the Income Tax Act, 1961.2. Disallowance of royalty payments under Section 40(a)(i) read with Section 195 of the Income Tax Act, 1961.3. Allowance of depreciation under Section 32 of the Income Tax Act, 1961 on royalty payments.Issue-wise Detailed Analysis:1. Jurisdiction of the AO under Section 153A:The primary issue raised by the assessee was the wrongful assumption of jurisdiction by the Assessing Officer (AO) under Section 153A of the Income Tax Act, 1961, due to the absence of a search action on the assessee. The assessee argued that no search was initiated under Section 132 of the Act, and their name was not mentioned in the search warrant. The Tribunal admitted this additional ground for adjudication, citing the Supreme Court decision in National Thermal Power Co. Ltd. vs. CIT (1998) 229 ITR 383 (SC), which allows legal issues to be raised at the appellate stage if the facts are on record.The Tribunal examined the facts and found that the assessee's name was not mentioned in the search warrant, which was admitted by the Departmental Representative. The Tribunal referred to the provisions of Section 153A, which requires a search under Section 132 or requisition under Section 132A for the AO to issue a notice under Section 153A. The Tribunal concluded that since no search was initiated on the assessee, the notice issued under Section 153A and the consequent assessment framed under Section 143(3) read with Section 153A were void ab initio. This conclusion was supported by several judicial precedents, including M/s Balaji Yarn Ltd vs. CIT, Priyanka Singhania vs. CIT, and Ramesh D Patel vs. CIT.2. Disallowance of Royalty Payments under Section 40(a)(i) read with Section 195:The assessee contested the disallowance of Rs. 24,04,059/- for royalty payments made to UOP LLC, USA, under Section 40(a)(i) read with Section 195 of the Income Tax Act, 1961. The CIT(A) had confirmed the disallowance, but the assessee argued that the royalty was paid outside India on sales effected outside India, making the provisions of Section 40(a)(i) read with Section 195 inapplicable. However, this ground became academic as the Tribunal allowed the appeal on the jurisdictional issue, rendering the other grounds moot.3. Allowance of Depreciation under Section 32 on Royalty Payments:The assessee also raised an additional ground seeking depreciation under Section 32 of the Act on the royalty paid to UOP LLC, USA, arguing that the payment was towards the acquisition of assets eligible for depreciation. This ground, too, became academic following the Tribunal's decision on the jurisdictional issue.Conclusion:The Tribunal quashed the notices issued under Section 153A and the consequent assessments framed under Section 143(3) read with Section 153A for the assessment years 2004-05 to 2008-09, due to the absence of a search action on the assessee. As a result, the other grounds raised by the assessee, including the disallowance of royalty payments and the claim for depreciation, were rendered academic. The appeals were partly allowed, with the primary relief granted on the jurisdictional ground.