2022 (2) TMI 808 - AT - Income Tax

Tribunal sets aside assessment for jurisdictional defects, deems additions unsustainable, remits carry forward losses issue for fresh examination.

M/s. Simtools Pvt. Ltd. Versus Dy. Commissioner of Income Tax Central Circle–7 (3) (Erstwhile DCIT, CC–42) Mumbai

M/s. Simtools Pvt. Ltd. Versus Dy. Commissioner of Income Tax Central Circle–7 (3) (Erstwhile DCIT, CC–42) Mumbai - TMI Issues Involved:1. Jurisdiction of addition under section 153C.2. Merits of addition of Rs. 105,84,000 and Rs. 207,21,096.3. Disallowance of set-off of brought forward loss of Rs. 28,68,288.Issue-wise Detailed Analysis:1. Jurisdiction of Addition under Section 153C:The assessee challenged the jurisdiction of the addition under section 153C, asserting that the provisions were not satisfied, making the assessment defective and liable to be quashed. The Tribunal noted that section 153A provides the procedure for assessment in search cases, and section 153C applies to persons related to whom materials are found during a search of another person. The Tribunal emphasized that for jurisdiction under section 153C, incriminating material must pertain to the specific assessment year in question. The Tribunal found no specific material correlating to the assessment year under reference, which belonged to the assessee. The entire finding was based on the search and material found in the case of Lodha Group, with no mention of specific material related to the assessee. The authorities below relied on statements from Lodha Group employees and Shri Abhinandan Lodha, who was not a director of the assessee company. Thus, the Tribunal concluded that the assessment under section 153C suffered from a jurisdictional defect and set it aside.2. Merits of Addition of Rs. 105,84,000 and Rs. 207,21,096:The additions were based on materials found in the search of Lodha Group and statements from its employees, including Shri Abhinandan Lodha. The Tribunal noted that the assessee is a separate legal entity, and there was no specific material found during the search that belonged to the assessee company. The Tribunal highlighted that the statements and materials referred to were not identified as belonging to the assessee company. The Tribunal also referred to the Supreme Court's decision in the case of Arjun Panditrao Khotkar vs Kailash Kushanrao Gorantyal, which dealt with the admissibility of electronic records. The Tribunal found that the electronic evidence referred to did not comply with the requirements under section 65B of the Evidence Act. Consequently, the Tribunal concluded that the additions on merits were not sustainable.3. Disallowance of Set-off of Brought Forward Loss of Rs. 28,68,288:The AO disallowed the set-off of brought forward loss, citing a significant change in the shareholding pattern, invoking the provisions of section 79. The CIT(A) agreed with the AO's view. However, the Tribunal noted that the assessee provided a chart claiming that the findings of the authorities were factually incorrect. The Tribunal remitted the issue to the AO for fresh examination in light of the documents submitted by the assessee regarding the change in shareholding pattern.Conclusion:The Tribunal allowed the appeal by the assessee, setting aside the assessment under section 153C due to jurisdictional defects and finding the additions on merits unsustainable. The issue of carry forward losses was remitted to the AO for fresh examination.Order Pronounced:The order was pronounced in the open court on 09.02.2022.