2016 (1) TMI 1352 - AT - Income Tax

Assessment u/s 153A - Held that - Additional legal ground raised by the assessee for AY 2006-07 that search assessment was ab initio void as the original assessment remained unabated cannot be accepted in as much as the 143(3) assessment is completed after search only. A technical ground could have been raised as to how the assessment u/s 143(3) can be framed when 153A assessment is pending; be that as it may since no such ground is raised the additional ground does not help the cause of the assessee. However it helps the assessee s case for AY 2006-07 to the limited extent that no additions in the search assessment can be made when no incriminating material is found on or relied on. Consequently additional ground raised by assessee is dismissed with above observations.

Summary

Issues Involved:
1. Trading addition and gross profit rate determination for the assessment year 2006-07.
2. Refusal to entertain additional evidence for the assessment years 2008-09 and 2009-10.
3. Validity of assessment order passed under Section 153A read with Section 143(3) in the absence of incriminating material.

Detailed Analysis:

1. Trading Addition and Gross Profit Rate Determination for the Assessment Year 2006-07:
The assessee challenged the confirmation of a trading addition of Rs. 14,60,764 out of Rs. 29,74,480 made by the AO by confirming a gross profit rate of 50% on declared sales of Rs. 1,51,37,197 against the 60% applied by the AO and 40.35% declared by the assessee. The revenue, on the other hand, contested the reduction of the gross profit rate from 60% to 50% by the CIT(A). The Tribunal noted that the ITAT Jaipur had previously adjudicated similar issues in the assessee's appeal for AY 2007-08, where it was held that no incriminating documents were found during the search, and therefore, no addition could be made in the assessment under Section 153A. It was emphasized that the books of account were audited, and no defects were pointed out by the AO except for the non-maintenance of the stock register, which alone could not justify the rejection of the book results under Section 145(3).

2. Refusal to Entertain Additional Evidence for the Assessment Years 2008-09 and 2009-10:
The assessee argued that the CIT(A) erred in refusing to entertain additional evidence by rejecting the application under Rule 46A despite calling a remand report from the AO. The Tribunal observed that the ITAT Jaipur had previously accepted the additional evidence in the assessee's case for AY 2007-08, acknowledging the disputes among directors and the subsequent production of books of account. The Tribunal noted that the CIT(A) had given self-contradictory findings across different years regarding the production of books, and the AO had not raised serious issues in the remand report. Consequently, the Tribunal found no justification for the refusal to admit additional evidence and deleted the trading additions for the assessment years 2008-09 and 2009-10.

3. Validity of Assessment Order Passed Under Section 153A Read with Section 143(3) in the Absence of Incriminating Material:
The assessee raised an additional ground for AY 2006-07, contending that the assessment order passed under Section 153A read with Section 143(3) was void ab initio in the absence of any incriminating material found during the search. The Tribunal admitted this additional ground, noting that it was purely legal in nature. It was highlighted that the ITAT Jaipur had previously held that no addition could be made in the assessment under Section 153A unless incriminating material was found during the search. The Tribunal cited various case laws, including the Hon'ble Jurisdictional High Court's decision in Jai Steel (India) vs. ACIT, which supported the assessee's contention. The Tribunal concluded that the impugned additions were not based on any incriminating material or inquiry and were merely a review of earlier assessment orders. Consequently, the Tribunal deleted all the impugned additions for the assessment years under consideration.

Conclusion:
The Tribunal partly allowed the assessee's appeal for AY 2006-07, fully allowed the appeals for AY 2008-09 and 2009-10, and dismissed the revenue's appeal. The Tribunal emphasized that no additions could be made in the absence of incriminating material found during the search and that the refusal to admit additional evidence was unjustified. The order was pronounced in the open court on 13/01/2016.