2024 (6) TMI 419 - AT - Income Tax

Assessment under sections 153A and 153C requires incriminating material from search operations for additions

The ITAT Delhi ruled in favor of the assessee in an assessment under sections 153A and 153C. The tribunal held that additions cannot be made without ... Assessment u/s 153A r.w.s. 153C - incriminating material found during the search or not? - HELD THAT:- On perusal of the assessment order, it is noted that the instant assessment is pursuant to notice u/s. 153C read with 153A of the Act. We note that the additions in dispute are not based upon any incriminating material found during the course of search. DR could not dispute this proposition. We note that as per the decision of Abhisar Buildwell Pvt. Ltd. (2023 (4) TMI 1056 - SUPREME COURT) no addition can be made the assessment framed u/s. 153A dehors incriminating material found during the search. We find considerable cogency in the contention of the AR that the original return of income was filed on 25.09.2010 and notice u/s.153C is dated 18.09.2014 and in view of the Hon’ble Supreme Court in the case of CIT vs. Jasjit Singh 2023 (10) TMI 572 - SUPREME COURT] should be taken as the date of search in the present case and therefore, the assessment year 2010-11 did not abate on the aforesaid date of search as time limit to issue notice expired on 30.09.2011. Identical disallowance on account of freight charges was made in assessee’s own case in AY 2007-08 and AY 2009-10 and the Tribunal has deleted the same. Thus we set-aside the order of the CIT(A) and decide the issues in favour of the assessee and accordingly, allow the appeal of the assessee for AY 2010-11. Assessee appeal allowed. Issues Involved:1. Jurisdiction and issuance of notice under section 153A read with section 153C of the Income Tax Act.2. Validity of assessment framed under section 153A(1)(b).3. Disallowance under section 14A read with Rule 8D.4. Disallowance of freight charges under section 37(1).5. Adhoc addition by applying a GP rate on the purchase of shares.6. Adequate opportunity of being heard.Issue-wise Detailed Analysis:1. Jurisdiction and Issuance of Notice under Section 153A read with Section 153C:The Assessee contended that the notice issued under section 153A read with section 153C was in the name of a non-existing entity, thus challenging the jurisdiction. The Tribunal noted that the original return was filed on 25.09.2010, and the notice under section 153C was dated 18.09.2014. Referring to the Supreme Court's decision in CIT vs. Jasjit Singh, the Tribunal concluded that the assessment year 2010-11 did not abate as the time limit to issue notice expired on 30.09.2011. Therefore, the notice was deemed valid.2. Validity of Assessment Framed under Section 153A(1)(b):The Assessee argued that the assessment framed under section 153A(1)(b) was bad in law. The Tribunal observed that the assessment was pursuant to notice under section 153C read with section 153A. It was noted that the additions in dispute were not based on any incriminating material found during the search. Citing the Supreme Court's decision in PCIT vs. Abhisar Buildwell Pvt. Ltd., the Tribunal held that no addition could be made under section 153A without incriminating material found during the search. Consequently, the assessment was deemed invalid.3. Disallowance under Section 14A read with Rule 8D:The AO disallowed Rs. 1,45,000 under section 14A read with Rule 8D, claiming the Assessee showed share transactions as investments to claim exemption under section 10(38). The Tribunal found that the disallowance was made without any incriminating material found during the search. Based on the Supreme Court's decision in DCIT vs. UK Paints (Overseas) Ltd., the Tribunal ruled that such disallowance was beyond the jurisdiction of the proceedings and thus deleted the disallowance.4. Disallowance of Freight Charges under Section 37(1):The AO disallowed Rs. 54,82,646, alleging that the Assessee failed to produce bills and vouchers, and the companies involved were paper entities. The Tribunal noted that the disallowance was made without any incriminating material found during the search. Referring to the Supreme Court's decision in DCIT vs. UK Paints (Overseas) Ltd., the Tribunal held that the disallowance was beyond the jurisdiction and deleted it. Additionally, it was noted that similar disallowances in AY 2007-08 and AY 2009-10 were deleted by the Tribunal.5. Adhoc Addition by Applying GP Rate on Purchase of Shares:The AO made an adhoc addition of Rs. 48,00,000 by applying an 8% GP rate on the purchase of shares, alleging bogus purchases from paper entities. The Tribunal found that the addition was made without any incriminating material found during the search. Citing the Supreme Court's decision in DCIT vs. UK Paints (Overseas) Ltd., the Tribunal ruled that such addition was beyond the jurisdiction of the proceedings and deleted the addition.6. Adequate Opportunity of Being Heard:The Assessee contended that the CIT(A) passed the impugned order without giving an adequate opportunity of being heard. Given that the Tribunal decided the appeals on merit in favor of the Assessee and set aside the impugned orders, this issue became academic and did not require further adjudication.Conclusion:The Tribunal set aside the orders of the CIT(A) for AY 2010-11, AY 2011-12, and AY 2012-13, deciding all issues in favor of the Assessee. Consequently, all three appeals were allowed, and the other grounds raised by the Assessee were deemed academic and not adjudicated.Order Pronounced on 31/05/2024.