2017 (4) TMI 1555 - AT - Income Tax

Assessment u/s 153A - Addition of remission of foreign currency term loan - whether there is scope of assessment u/s. 153A of the Act in respect to completed assessment which is limited only to undisclosed income and undisclosed assets found during the course of search or not? - HELD THAT - The regular assessment under s. 143(3) of the Act had been completed as per order dated 22.03.2007 of the AO. Therefore it follows that as on the date of search there was an assessment completed on the assessee under section 143(3) of the Act and in the said order there is no addition/ disallowance regarding the remission of foreign currency term loan subsequently the A.O. initiated proceedings under s. 153A. As in the assessment completed under s. 143(3) r.w.s 153A the A.O. has brought to tax a sum being the principal amount of loan waived by the lender without any incriminating material found during the course of search. Once this is the position the issue is clearly covered in favour of assessee and against the Revenue by the decision of Continental Warehousing Corporation (Nhava Sheva) Ltd. 2015 (5) TMI 656 - BOMBAY HIGH COURT . Respectfully following the same and in the given said of facts we are of the view that this principal amount waived by the lender could not be added. Accordingly we confirm the order of CIT(A) deleting the addition and dismiss this issue of Revenue s appeal.

Summary

Issues Involved:
1. Validity of assessment under section 153A based on seized material.
2. Set-off of carry forward unabsorbed depreciation beyond eight years.
3. Deduction of electricity charges payable to NESCO.

Issue-wise Detailed Analysis:

1. Validity of Assessment under Section 153A:
The primary issue in the Revenue’s appeal was whether the assessment under section 153A of the Income Tax Act, 1961, can be made only on the basis of seized material where the assessment has not abated. The CIT(A) held that the assessment under section 153A is limited to the material seized during the course of the search. The Revenue contended that the Assessing Officer (AO) is required to assess or reassess the total income of the assessee for six assessment years and is not restricted to undisclosed income based on seized material.

The Tribunal examined the facts and noted that the assessee’s original assessment under section 143(3) was completed on 22-03-2007, and no additions were made regarding the remission of foreign currency term loan. During the search conducted on 30-11-2010, no incriminating material pertaining to this issue was found. The Tribunal referred to the judgments of the Hon’ble Bombay High Court in the case of Continental Warehousing Corporation (Nhava Sheva) Ltd. and the Special Bench decision in All Cargo Global Logistics Ltd., which held that in cases of non-abated assessments, the AO could only make additions based on incriminating material found during the search. Since no such material was found, the Tribunal confirmed the CIT(A)’s order deleting the addition of Rs. 39,04,49,429 and dismissed the Revenue’s appeal.

2. Set-off of Carry Forward Unabsorbed Depreciation Beyond Eight Years:
The Revenue also raised the issue of the CIT(A) directing the AO to set off carry forward unabsorbed depreciation, ignoring the legal position existing during that time which did not permit set off beyond eight years. The Tribunal did not provide a detailed analysis on this issue as it was not the primary contention in the appeal.

3. Deduction of Electricity Charges Payable to NESCO:
In the cross appeal by the assessee, the issue was the deduction of Rs. 38.85 crores for electricity charges payable to NESCO for AY 2005-06 and Rs. 16 crores for AY 2006-07. The assessee claimed that the liability towards electricity charges was crystallized and settled during the relevant assessment years, and thus, the deduction should be allowed.

The Tribunal noted that this was a new claim made by the assessee and no seized documents or incriminating material were found by the Revenue regarding this claim. The learned Counsel for the assessee conceded that the appeals on this issue should be decided against the assessee. Consequently, the Tribunal dismissed the assessee’s appeals for both AY 2005-06 and AY 2006-07.

Conclusion:
The Tribunal dismissed the Revenue’s appeal, confirming that the assessment under section 153A is limited to the material seized during the search in cases of non-abated assessments. The Tribunal also dismissed the assessee’s appeals regarding the deduction of electricity charges payable to NESCO due to the lack of incriminating material and the new nature of the claim.