Court Upholds ITAT Order on Section 80HHC; Dismisses Revenue's Appeal

The Court dismissed the appeal filed by the Revenue, upholding the ITAT order that deleted the deduction disallowed under Section 80HHC of the Income Tax Act. It was held that Section 153A did not apply as no incriminating material was found during the search, and assessments were already complete. The Court relied on the interpretation of CIT vs Kabul Chawla, stating that assessments pending at the search date shall abate, and fresh assessments must be based on seized material. As the respondent's assessment was finalized before the search with no incriminating documents, no addition could be made under Section 153A.

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Issues involved:
Challenge to ITAT order on deduction disallowed under Section 80HHC of the Income Tax Act, interpretation of CIT vs Kabul Chawla judgment, jurisdiction of Assessing Officer under Section 153A of the Act.

Analysis:
1. The appellant challenged the ITAT order dated 29th November, 2018, which dismissed the appeal filed by the appellant-Revenue. The appellant contended that the ITAT erred in deleting the deduction disallowed under Section 80HHC of the Income Tax Act, 1961, which had been confirmed by CIT(A) in the Assessee's own case for Assessment Years 2003-04, 2004-05, and 2005-06. The appellant argued that the ITAT misinterpreted the judgment of the Court in CIT vs Kabul Chawla and also misapplied the power and jurisdiction of the Assessing Officer under Section 153A of the Act.

2. The Tribunal, in the impugned order, held that if no incriminating material was found during the search and the assessment was complete, then Section 153A would not apply. A Division Bench of the Court in PCIT vs. Neeta Gutgutia summarized the legal position regarding Section 153A based on the earlier judgment in Commissioner of Income Tax v. Kabul Chawla. The Court held that assessments pending on the date of search shall abate, and the Assessing Officer will have to compute the total income for those years as a fresh exercise. The assessment under Section 153A must be based on seized material, and in the absence of incriminating material, completed assessments can be reiterated.

3. The Court concluded that the questions of law raised in the appeal had been settled by the predecessor Division Bench in Kabul Chawla, and since the assessment of the respondent had attained finality before the search date with no incriminating documents found, no addition could be made under Section 153A. Despite some judgments being challenged and pending before the Supreme Court, with no stay granted, the Court relied on the judgments of the Supreme Court in Kunhayammed vs. State of Kerala and Shree Chamundi Mopeds Ltd. vs. Church of South India Trust Association to dismiss the present appeals as covered by the judgment of the predecessor Division Bench.

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