2009 (1) TMI 344 - AT - Income Tax

Tribunal Rules AO Lacked Authority; Invalidates Deductions Reduction, Allows Assessee Appeals, Dismisses Revenue Appeals.

The Tribunal set aside the assessments made under Section 153C, determining that the Assessing Officer (AO) lacked the authority to initiate action under ... Assessment u/s 153A r/w s. 153C - Search And Seizure - original assessments completed prior to initiation of action u/s.153C - documents seized during the search belong to the assessee or not - Whether AO was competent to initiate action u/s.153C so as to frame assessment u/s.153A? HELD THAT:- AO assumes jurisdiction for framing assessment u/s.153C where the AO is satisfied that any money, bullion, jewellery or other valuable articles or things or books of account or documents seized or requisitioned belongs to or belong to a person other than the person in whose case search is conducted u/s. 132(1). Therefore, for initiating action u/s.153C for framing assessment u/s.153A, the prerequisite is that the satisfaction of the AO that the money etc. and documents etc. belongs to a person other than the person searched u/s.132. Assessee has filed a chart for all the years, it demonstrates that the original assessments were completed prior to initiation of action under s. 153C. In the present assessment orders no addition has been made on account of documents stated to be pertaining to the assessee - Though all these assessments have been decided in further appeal and settled by CIT(A) or Tribunal, the same are subject-matter of the litigation. In our opinion the AO could not have done so since all these assessments have not abated. As per second proviso to s. 153C only those assessments or reassessments falling within the period of six assessment years referred to in sub-s. (1) of s. 153A and pending on the date of initiation of search shall abate. Since, the original assessments were not pending the same have not abated. The AO was not competent to assume jurisdiction u/s.153C as (i) none of the documents found during the course of search of other person belong to the assessee, (ii) the original assessments have not abated. What were pending were only the appeals. However, since the appeals do not abate the original assessments survive and hence cannot be reopened u/s.153C proceedings. We, therefore, set aside all the assessments made u/s.153C. In view of the finding and applying the decision of the Tribunal Calcutta Bench in the case of LMJ International Ltd.[2007 (12) TMI 237 - ITAT CALCUTTA-E], since we have found that the documents found during the search at the residential premises of Shri Lalit K. Patel and Kantilal M. Patel do not 'belong to the assessee' the AO was not competent to initiate action u/s.153C so as to frame assessment u/s.153A. We, therefore, set aside the assessments. The doubt raised by ld DR that if the original assessment abates and if subsequently the Tribunal holds that even the assessments u/s.153A are also invalid, the entire assessment including original assessment stands cancelled. The doubt is now dispelled by amendment to s.153A of the Act whereby sub-s. (2) is included by Finance Act, 2008 with retrospective effect from 1st June, 2003. In such a situation the assessments shall stand revived, with effect from the date of receipt of order of such annulment. Therefore, in the present case, since we have held that assessment u/s.153A r/w s.153C does not survive, the original assessment stands revived. Since we have set aside the assessments the issues raised by the assessee as well as by the Revenue as regards computation of deduction u/ss. 80HHC and 80-IA are not proposed to be dealt. In the result, the appeals of the assessee are allowed and that of the Revenue are dismissed. Issues Involved:1. Validity of proceedings initiated under Section 153A read with Section 153C of the Income Tax Act.2. Reduction of deductions claimed under Sections 80HHC and 80-IA of the Income Tax Act.3. Jurisdiction of the Assessing Officer (AO) in reassessing completed assessments based on seized documents.Issue-wise Detailed Analysis:1. Validity of Proceedings Initiated under Section 153A read with Section 153C of the Income Tax Act:A search was conducted under Section 132(1) of the Act, and documents were seized from the residential premises of two individuals. The AO initiated proceedings under Section 153A read with Section 153C, asserting that the documents belonged to the assessee. However, the AO admitted that the seized documents did not reveal any specific undisclosed income. The assessee contested this, arguing that the documents were maintained by the individuals in their professional capacity and did not belong to the assessee. The Tribunal agreed with the assessee, stating that the documents, although related to the assessee's work, did not belong to the assessee. The Tribunal emphasized that for initiating action under Section 153C, the documents must belong to the assessee and reveal undisclosed income, which was not the case here. Thus, the initiation of proceedings under Section 153C was deemed invalid.2. Reduction of Deductions Claimed under Sections 80HHC and 80-IA of the Income Tax Act:The AO reduced the deductions claimed under Sections 80HHC and 80-IA during the assessment. The reductions were based on:- Inclusion of excise duty and sales tax in total turnover.- Ignoring loss from export trade while computing deduction under Section 80HHC.- Eligibility of deduction under Section 80HHC on a unit-wise basis.- Deduction under Section 80HHC in accordance with Section 80-IA(9).- Exclusion of duty drawback and premium on sale of licenses from eligible profits under Section 80-IA.The Tribunal noted that these issues were already litigated in the original assessments and had attained finality through appellate orders. Since the original assessments were not pending at the time of the search, they could not be reopened under Section 153C proceedings. Therefore, the AO's action in reducing the deductions was invalid.3. Jurisdiction of the Assessing Officer in Reassessing Completed Assessments Based on Seized Documents:The Tribunal highlighted that the AO could not reassess completed assessments unless the documents seized belonged to the assessee and revealed undisclosed income. The Tribunal referred to various judicial precedents and CBDT Circular No. 7 of 2003, which clarified that only pending assessments abate, and completed assessments cannot be reopened unless they abate. In this case, the original assessments were completed, and only appeals were pending, which do not abate. Therefore, the AO had no jurisdiction to reassess the completed assessments under Section 153C.Conclusion:The Tribunal set aside the assessments made under Section 153C, holding that the AO was not competent to initiate action under Section 153C as the seized documents did not belong to the assessee and did not reveal any undisclosed income. Consequently, the appeals of the assessee were allowed, and those of the Revenue were dismissed.