2017 (12) TMI 661 - AT - Income Tax

Assessment order quashed due to lack of incriminating material

The Tribunal allowed the Assessee's appeal, quashing the assessment order under Section 153A/143(3) due to the absence of incriminating material found ... Scope of assessment u/s 153A - Disallowance of deduction u/s. 35D - Disallowance of claim of indexation on the sale of property - Held that:- We find that the additions made by the AO are beyond the scope of section 153A of the Income Tax Act, 1961, because no incriminating material or evidence had been found during the course of search so as to doubt the transactions. It was noted that in the entire assessment order, the AO has not referred to any seized material or other material for the year under consideration having being found during the course of search in the case of assessee, leave alone the question of any incriminating material for the year under appeal. - Decided in favour of assessee. Issues Involved:1. Disallowance of deduction claimed under Section 35D of the Income Tax Act, 1961.2. Disallowance of claim of indexation on the sale of property.3. Admission of additional legal grounds challenging the validity of the assessment under Section 153A of the Income Tax Act, 1961.Issue-Wise Detailed Analysis:1. Disallowance of Deduction Claimed Under Section 35D:The Assessee contested the disallowance of Rs. 21,611 claimed as a deduction under Section 35D of the Income Tax Act, 1961, which was confirmed by the CIT(A). However, this issue was not adjudicated upon as the assessment itself was quashed on other grounds.2. Disallowance of Claim of Indexation on the Sale of Property:The Assessee also challenged the disallowance of the claim of indexation amounting to Rs. 2,32,062 on the sale of property, which was similarly confirmed by the CIT(A). This issue too was not specifically addressed due to the quashing of the assessment order on legal grounds.3. Admission of Additional Legal Grounds:The Assessee raised additional legal grounds challenging the validity of the assessment order under Section 153A, arguing that the additions made were not based on any incriminating material found during the search operation. The Tribunal admitted these additional grounds, citing the Supreme Court's decision in NTPC Ltd. (229 ITR 383) and the ITAT Special Bench decision in All Cargo Global Logistics Ltd. (ITA Nos 5018 to 5022 & 5059/M/10), which allow raising pure legal questions at any stage of appellate proceedings if no fresh investigation of facts is required.Assessment Under Section 153A:The Assessee's original return declared an income of Rs. 790, which was processed under Section 143(1). A search and seizure operation was conducted on 21.3.2007, and a notice under Section 153A was issued. The Assessee contended that the assessment order passed by the AO under Section 153A/143(3) was invalid as it was not based on any incriminating material found during the search. The Tribunal noted that the AO did not refer to any seized material or other incriminating evidence for the year under consideration in the assessment order.Legal Precedents:The Tribunal relied on several legal precedents, including:- Commissioner of Income Tax-III, Pune vs. Sinhgad Technical Educational Society (2017) 84 taxmann.com 290 (SC): The Supreme Court held that incriminating material must pertain to the assessment years in question.- Commissioner of Income Tax vs. Kabul Chawla (2016) 380 ITR 573 (Del.): The Delhi High Court held that in the absence of incriminating material, no additions could be made to the income already assessed.- Principal Commissioner of Income Tax vs. Index Securities Ltd. 86 taxmann.com 84 (Delhi): The Delhi High Court emphasized that seized documents must belong to the Assessee and be incriminating to justify jurisdiction under Section 153C.Tribunal's Decision:The Tribunal found that the additions made by the AO were beyond the scope of Section 153A as no incriminating material was found during the search. Consequently, the assessment order was quashed, rendering other issues academic and not requiring adjudication.Conclusion:The Assessee's appeal was allowed, and the assessment order under Section 153A/143(3) was quashed. The Tribunal's decision was pronounced in the Open Court on 07/12/2017.