2020 (1) TMI 725 - AT - Income Tax

Appeal granted: Assessment order quashed for failure to issue mandatory notice. Deletion of additions, travel expenses disallowance.

The Tribunal allowed the appeal, quashing the assessment order under section 143(3) due to the failure to issue a mandatory notice under section 153C. The ... Assessment u/s 153C - assessee argued that assessment as barred by limitation - HELD THAT:- The impounded documents have been received by A.O. on 29.01.2014 when satisfaction under section 153C have been recorded. The First Proviso to Section 153C of the I.T. Act provides that six assessment years in which assessment or re-assessments could be made under section 153C of the I.T. Act would also have to be considered with reference to the date of handing over of the assets or documents to the A.O. of the assessee. Therefore, the six assessment years under section 153C of the I.T. Act in the case of assessee would be A.Ys. 2008- 2009 to 2013-2014. The A.O, therefore, shall have to pass the assessment order under section 153C of the I.T. Act. Further, the A.O. has not issued any notice under section 153C of the I.T. Act, therefore, the issue is covered by the above decision in favour of the assessee. The A.O. in the satisfaction note initiated the proceedings under section 153C only for A.Ys. 2006-2007 to 2011-2012 instead of A.Ys. 2008-2009 to 2013-2014. In view of the above, we are of the view that assessment order is illegal and bad in law and cannot be sustained in Law. - Decided in favour of assessee Issues Involved:1. Validity of the assessment framed under section 143(3) instead of section 153A read with section 153C.2. Disallowance of 10% of director’s foreign travelling expenses.Issue-wise Detailed Analysis:1. Validity of the Assessment Framed Under Section 143(3) Instead of Section 153A Read with Section 153C:The primary issue revolves around whether the assessment should have been framed under section 153C instead of section 143(3). The assessee argued that the satisfaction note prepared by the Assessing Officer (A.O.) on 29.01.2014 substituted the date of search, making the assessment year (A.Y.) 2012-2013 fall within the six preceding assessment years (A.Y. 2008-2009 to 2013-2014) for the purpose of assessment under section 153A. Consequently, the assessment framed under section 143(3) was claimed to be invalid and should be annulled.The Tribunal considered the rival submissions and noted that the search was conducted on 09.11.2011, and the impounded documents were received by the A.O. on 29.08.2013. The satisfaction under section 153C was recorded on 03.10.2013. The Tribunal referred to several precedents, including the Hon’ble Delhi High Court's judgment in Pr. CIT vs. Sarwar Agency P. Ltd., which clarified that the six assessment years for which assessments or reassessments could be made under section 153C would be construed with reference to the date of handing over of the assets or documents to the A.O. of the assessee.The Tribunal observed that the A.O. should have issued a notice under section 153C before initiating proceedings against the assessee, which was not done. The issue of notice under section 153C is mandatory and a condition precedent for taking action against the assessee. Therefore, the assessment order was deemed void, illegal, and bad in law. Consequently, the Tribunal quashed the assessment order passed under section 143(3) and deleted all additions.2. Disallowance of 10% of Director’s Foreign Travelling Expenses:The second issue pertained to the disallowance of Rs. 6,23,370, which is 10% of the director’s foreign travelling expenses. The A.O. initially disallowed Rs. 62,33,699 on the grounds that personal elements in the expenses could not be ruled out. The assessee contended that no such disallowance should be made in the case of a company.The Ld. CIT(A) restricted the disallowance to 10% of the expenses, sustaining the addition of Rs. 6,23,370. However, since the Tribunal set aside the assessment order on legal grounds, the issue of disallowance of foreign travel expenses became academic and did not require further discussion.Conclusion:The Tribunal allowed the appeal of the assessee, quashing the assessment order passed under section 143(3) due to the failure to issue a mandatory notice under section 153C. Consequently, all additions, including the disallowance of foreign travel expenses, were deleted.