2022 (7) TMI 1606 - AT - Income Tax

Assessments for AYs 2011-12 to 2014-15 upheld; no search-based evidence to deny s.37 deduction or treat receipts under s.68/s.115BBE

ITAT Chennai held that assessments for AYs 2011-12 to 2014-15 were completed/unabated at the time of search (27.12.2016), and no incriminating material ... Revision u/s 263 - Tribunal has already quashed the assessment u/s 153A [2021 (12) TMI 1194 - ITAT CHENNAI] - disallowance of interest u/s.37 and for assessment of income from other sources u/s.68 r.w.s 115BBE - HELD THAT:- In this case, search took place on 27.12.2016. The assessments for assessment years 2011-12 to 2014-15 are unabated / completed as on date of search, because assessments either completed u/s.143(1) / 143(3) of the Act and further statutory time limit for issue of notice u/s.143(2) has been expired on 30.09.2015 i.e., much before date of search on 27.12.2016. Therefore, in our considered view, assessments for assessment years 2011- 12 to 2014-15 are unabated / completed. No reference of any incriminating material found as result of search in respect of additions made by the AO towards disallowance of interest u/s.37 of the Act and for assessment of income from other sources u/s.68 r.w.s 115BBE. In absence of any incriminating material found as result of search, completed/unabated assessments cannot be disturbed to make additions towards income which was already disclosed in regular return filed for relevant assessment years. Therefore, we are of the considered view that additions made by the AO towards disallowance of interest u/s.37 of the Act and further assessment of income from other sources u/s.68 r.w.s 115BBE of the Act cannot survive under law. Hence, we direct the Assessing Officer to delete additions made towards interest u/s.37 of the Act and assessment of income from other sources u/s.68 r.w.s. 115BBE. Since the assessments were already quashed in these four years, these revision orders have become infructuous and inoperative and hence the appeals of assessee are allowed. 1. ISSUES PRESENTED AND CONSIDERED 1. Whether delay in filing appeals caused by the Covid-19 period is to be condoned for admission of appeals beyond the statutory limitation. 2. Whether assessments framed under section 153A of the Income Tax Act in respect of assessment years for which assessments were completed prior to search (i.e., unabated/completed assessments) can be disturbed in the absence of incriminating material seized or found as a result of search/requisition. 3. Whether a revision order under section 263 directed to be implemented after it is rendered ineffective by a subsequent quashing of the underlying assessment is operative or becomes inoperative. 4. Whether additions made by the Assessing Officer (specifically disallowance of interest under section 37 and assessment of income under section 68 read with section 115BBE) in assessments completed under section 153A can survive where no incriminating/seized material supports those additions. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Condonation of delay in filing appeals due to Covid-19 Legal framework: Statutory limitation for filing appeals is governed by the relevant procedural provisions; courts may condone delay for sufficient cause. The Hon'ble Supreme Court issued directions in relation to delays occurring during specified Covid-19 period (orders referenced by parties). Precedent treatment: The Tribunal applied the directions of the Supreme Court given in connected miscellaneous applications concerning condonation of delay during the period 15.03.2020 to 14.03.2021 and subsequent extension to 28.02.2022. Interpretation and reasoning: The assessee's delay of 163 days in filing appeals was attributed to the Covid-19 pandemic. In light of the Supreme Court's directions and subsequent condonation orders, the Tribunal exercised its power to condone the delay and admitted the appeals for adjudication. Ratio vs. Obiter: Ratio - Delay caused by the pandemic period as covered by the Supreme Court directions constitutes sufficient cause for condonation where those directions apply. Obiter - None. Conclusion: Delay in filing the appeals was condoned and the appeals were admitted for adjudication. Issue 2 - Validity of assessments under section 153A where assessments were completed prior to search and no incriminating material was found Legal framework: Section 153A contemplates assessments or reassessments consequent to search and seizure under section 132 (or requisition). Principle: conduct of assessment under section 153A must be linked to incriminating material found as a result of search/requisition when the original assessment for the year was already completed (unabated). Precedent treatment: The Tribunal followed a line of judicial decisions including the ratio in the decision of the Supreme Court (referred to as Meeta Gutgutia) and several High Court decisions (including Continental Warehousing Corporation, Kabul Chawla, and Dipak Jashvanthalapunchal) that hold that completed/unabated assessments cannot be disturbed under section 153A in absence of incriminating material found as a result of search. Interpretation and reasoning: The Tribunal examined facts showing that the search occurred after the statutory period had lapsed and after assessments for the relevant years were completed (assessments completed under sections 143(1)/143(3) with limitation for issue of notice under section 143(2) expired). There was no reference to or reliance upon any incriminating/seized material in respect of the additions challenged (interest disallowance under section 37 and alleged unexplained credits/income under section 68/115BBE). Applying the established principle, the Tribunal held that in absence of incriminating material discovered by search, additions in assessments framed under section 153A cannot be sustained where the original assessments were completed prior to search. Ratio vs. Obiter: Ratio - Completed/unabated assessments cannot be disturbed under section 153A in the absence of incriminating material arising from the search; additions not supported by seized/incriminating material are liable to be deleted. Obiter - Discussion of various supporting authorities is explanatory and corroborative. Conclusion: The assessment additions made under section 153A for the assessment years in question could not survive because no incriminating material was found as a result of the search; accordingly, the Tribunal deleted those additions. Issue 3 - Effect of subsequent quashing of original assessment on revision orders under section 263 Legal framework: Section 263 empowers the principal commissioner/commissioner to revise an order passed by an assessing officer if it is prejudicial to the interests of the revenue. The operative effect of a revision order depends on the continued subsistence of the underlying assessment order. Precedent treatment: The Tribunal applied the logical and legal consequence that if the assessment order which was the subject-matter of revision is quashed by a competent forum, the revision order predicated upon that assessment loses its operative basis. Interpretation and reasoning: The Tribunal noted that the assessments framed under section 153A were quashed/failed before the revision was to be given effect, and the department accepted the ITAT decision without further appeal. Where the original assessment stands cancelled by the Tribunal, the revision order passed under section 263 in respect of such cancelled assessments becomes inoperative because there is no subsisting order to revise or direct de novo exercise upon. Ratio vs. Obiter: Ratio - A revision order under section 263 directed at an assessment order becomes inoperative if the original assessment order is subsequently quashed/cancelled; the revision cannot be implemented once its foundation is removed. Obiter - None. Conclusion: The revision orders under section 263 rendered pursuant to the now-quashed assessments became infructuous and inoperative; therefore, appeals against those revision orders were allowed. Issue 4 - Survival of specific additions (section 37 disallowance; section 68 read with section 115BBE) absent seized/incriminating material Legal framework: Additions and disallowances made in assessments must be supported by material evidence and lawful jurisdictional basis. When assessments are made under the special regime of section 153A, the nexus to seized/incriminating material is essential where the original assessments were completed prior to search. Precedent treatment: The Tribunal relied on the cited Supreme Court and High Court authorities holding that additions not supported by incriminating materials found on search cannot be sustained in section 153A assessments that relate to completed assessment years. Interpretation and reasoning: The Tribunal found (and the department's own correspondence admitted) there was no incriminating material seized relevant to the questioned additions (interest disallowance and alleged unexplained income). Given the absence of any seized material linking the additions to search-originated evidence, the Tribunal applied the established legal proposition and ordered deletion of the additions made under section 37 and the assessments made under section 68 read with section 115BBE for the years under consideration. Ratio vs. Obiter: Ratio - Additions under sections such as 37 and 68/115BBE made in assessments completed prior to search cannot be sustained under section 153A unless linked to incriminating material seized in the search. Obiter - None. Conclusion: The Tribunal deleted the impugned additions (interest disallowance under section 37 and income charged under section 68/115BBE) for the relevant assessment years because they were not supported by any incriminating material found in the search; consequentially, revision proceedings triggered by the now-quashed assessments were held to be inoperative.