2024 (6) TMI 1357 - AT - Income Tax

Revenue cannot interfere with concluded assessments without specific incriminating material found during search operations under section 153A

Feather Infotech Pvt. Ltd. Versus DCIT Central Circle-I Gurgaon

Feather Infotech Pvt. Ltd. Versus DCIT Central Circle-I Gurgaon - TMI Issues Involved:1. Jurisdiction under Section 153A(1)(b) of the Income Tax Act, 1961.2. Validity of additions/disallowances in the absence of incriminating material.3. Applicability of Section 69C and Section 68 of the Income Tax Act, 1961.Issue-wise Detailed Analysis:1. Jurisdiction under Section 153A(1)(b) of the Income Tax Act, 1961:The assessee challenged the jurisdiction usurped by the Assessing Officer (AO) under Section 153A(1)(b) of the Act. The primary contention was that the assessment was completed before the search, and thus, the additions/disallowances made had no rational connection to the material found during the search. The Tribunal emphasized that the assessment for A.Y. 2009-10 was concluded before the search and therefore, should not be reopened unless incriminating material was found during the search, which was not the case here.2. Validity of Additions/Disallowances in the Absence of Incriminating Material:The Tribunal noted that the AO made additions based on an appraisal report from a third party (Mr. Tarun Goyal) obtained post-search, which indicated that certain entities were involved in providing entries to convert unaccounted money into share capital and share premium. However, no incriminating material was found during the search at the assessee's premises. The Tribunal held that in the absence of any incriminating material found during the search, the AO could not make additions under Section 153A. The Tribunal relied on the landmark judgment in the case of Pr. CIT vs. Abhisar Builwell (P.) Ltd, which restricted the scope of assessment under Section 153A to incriminating material found during the search.3. Applicability of Section 69C and Section 68 of the Income Tax Act, 1961:For A.Y. 2013-14, the AO invoked Section 69C to disallow expenses claimed based on bills from M/s. Shubham Enterprises and M/s. Raoyal Sales Corporation, alleging them to be sham transactions. The CIT(A) confirmed the additions and also invoked Section 68. The Tribunal observed that the expenditures were capital in nature and thus should not increase the taxable income. Furthermore, the Tribunal noted that the invoices related to a different financial year (F.Y. 2011-12), making the disallowance in A.Y. 2013-14 impermissible. The Tribunal also held that Section 69C was inapplicable as there was no unexplained source of expenditure. Similarly, Section 68 was inapplicable as it pertains to credits in the books, not debits. The Tribunal criticized the CIT(A) for modifying the assessment basis without providing the assessee an opportunity to respond, deeming such exercise of co-terminus power impermissible.Conclusion:The Tribunal quashed the additions/disallowances made by the AO for both A.Y. 2009-10 and A.Y. 2013-14, citing the absence of any incriminating material found during the search and the improper application of Sections 69C and 68. Both appeals by the assessee were allowed.