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2015 (11) TMI 1358 - ITAT MUMBAI

2015 (11) TMI 1358 - ITAT MUMBAI - TMI - Assessment under section 153C - Disallowance on account of administrative and other overheads - plea of the assessee was that for the year under consideration the return filed by the assessee having been deemed to be processed under section 143(1) of the Act, in the absence of any notice issued under section 148 of the Act it attained finality - Held that:- It is not in dispute that the assessments in both the cases have attained finality by operation of .....

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he proceedings initiated under section 153C are not valid and therefore the assessments made thereon were quashed. The proceedings initiated under section 153C and the assessment made in the instant case is also not valid in as much as there is no incriminating material found during the course of search, pertaining to A.Y. 2011-12. Since the notice issued under section 153C is held to be invalid, the assessment made thereon has no legs to stand and therefore it is not necessary to deal with othe .....

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ance of ₹ 14,17,804/ 17,48,744/- (for assessment years 2007-08 and 2009-10 respectively) on account of administrative and other overheads without appreciating the fact that the assessee had not commenced its business in as much as construction of Mall started and continued upto A.Y. 2010-11 and hence the expenditure, if at all, could have been capitalised as capital work-in-progress and cannot be allowed as revenue expenditure. 3. By way of cross objection assessee contends that the procee .....

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rch action was completed on 17.03.2012. It deserves to be noticed that for A.Y. 2007-08 assessee filed its regular return of income under section 139 of the Act on 01.10.2007 declaring loss of ₹ 13,21,804/- and for A.Y. 2009-10 return of income was filed on 16.09.2009 declaring loss of ₹ 14,11,167/-. Since no notice was issued under section 143(2) of the Act returns are deemed to have been processed under section 143(1) of the Act and they reached finality on 31.03.2009 and 31.03.201 .....

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for initiating proceedings under section 153C has been recorded and notice under section 153A r.w.s. 153C was issued on 13.08.2013 in response to which the assessee declared nil income. The AO noticed that the assessee debited huge expenditure in the Profit & Loss Account out of which a portion was shown as preliminary expenditure whereas according to the AO the entire expenditure fall under that category. So he disallowed a sum of ₹ 14,17,804/- for A.Y. 2007-08 and ₹ 17,48,744/ .....

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rch and more over there is not even incriminating material found during the course of search which belonged to the assessee. In fact no undisclosed income or property was discovered in the course of search and hence proceedings under section 153C would not have been initiated. The CIT(A) observed that the decisions rendered in the context of section 153A by various courts are equally applicable in the context of the provisions of section 153C of the Act. He relied upon the decision of the Hon .....

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3A. Thus he concluded that there is no infirmity in the action of AO in issuing notice under section 153C of the Act. 8. As regards the contention of the assessee on merits, i.e. no addition/disallowance can be made since the same is not based on any incriminating material, the learned CIT(A) admitted, in para 5.5 of his order, that the AO has not made any disallowance on the basis of any incriminating material found during the search and also observed that there was no prior assessment order un .....

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e assessee company was that it had already set up and commissioned its business. Explaining further it was contended that business cannot be a continuous course of activity and it is not necessary that all the activities should be started at the same time. Land was acquired, clearing of plot, levelling and excavation work began in A.Y. 2007-08, consent was obtained from Maharashtra Pollution Control Board and clearance for conversion of land from MIDC was obtained. This is a case of a company wh .....

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time of hearing the learned counsel submitted that assessments for the years under consideration have already attained finality before the date of initiation of search and as per the first proviso to section 153C of the Act, no incriminating material has been found during the course of search. Explanation to Section 153A and Explanation 3 to section 147 speak of bringing to tax such income which has escaped assessment and only when some income escaped assessment then other additions can be sust .....

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ar or years referred to in sub-section (a) of section 153A. It was contended that though the amendment was brought into the statute book by Finance Act, 2014, the court have held that the same is curative and clarificatory in nature to make the provisions of section 153C workable and therefore it is retrospective in nature. He also relied upon the latest decision of the Hon'ble Delhi High Court in the case of CIT vs. Kabul Chawla (judgement mated 28.08.2015) wherein the court observed that c .....

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uring the search. Reliance was also placed upon the decision of the ITAT Cochin (Third Member) in the case of DCIT vs. Royal Cartons Pvt. Ltd. (ITA 472/Coch/2013 dated 16.09.2015) wherein the Third Member observed, in the contest of provisions of section 153C, that in respect of completed assessment or assessments terminated by the operation of law on the basis of regular return filed, the addition has to be made only on the basis of the material found during the course of search operation. This .....

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ification and in fact proceeding mechanically is not the intention of the Legislature. Therefore, in order to eliminate such situation it was made clear that based on incriminating material the AO is competent to issue notice under section 153C only in respect of such assessment years. In other words, where there is no incriminating material found relating to the assessment year the assessment for such year cannot be disturbed. Thus there is a need for assessment year specific information in pos .....

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was rendered on the peculiar facts of that case and the court was concerned with forwarding of documents from the officer who carried out the search to the AO concerned and it is not with regard to the AO who had to issue a notice under section 153C of the Act. On the contrary, in the case of Hagwood Commercial Developers Pvt. Ltd. (ITA No. 1305/Mum/2015 dated 22.05.2015), which is one of the parties referred to during the search conducted in the premises of Provogue (India) Ltd., the Bench obse .....

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he notice issued under section 153C is bad in law and consequently the proceedings completed only on the strength of the notice issued also deserves to be quashed. 12. On the other hand, the learned D.R. relied upon the orders passed by the Hon'ble Delhi High Court and Hon'ble High of Kerala to submit that it is not necessary for the AO concerned to examine as to whether the incriminating documents are related to the year under consideration or not and once the assessments are reopened b .....

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under section 143(1) of the Act have attained finality before the date of receipt of the files by the AO concerned. Under identical circumstances the ITAT Mumbai "SMC" Bench in the case of Hagwood Commercial Developers Pvt. Ltd observed that the notice issued under section 153C without incriminating material is not sustainable in law. The ITAT Cochin (Third Member) also had an occasion to consider identical issue wherein it was observed that the amendments made to section 153C are clar .....

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