Assessment finality on search date reached if time for issuing notice us 143(2) had expired. Additions can be made only if incriminating material found-ITAT

Assessment finality on search date reached if time for issuing notice us 143(2) had expired.  In such cases additions can be made only if incriminating material found-ITAT

ABCAUS Case Law Citation:
ABCAUS 1102 (2017) (01) ITAT

Assessment Year : 2008-09

Important Case Laws Cited:
National Thermal Power Co Ltd Vs. CIT 229 ITR 383 (SC)
CIT V/s Gurinder Singh Bawa (2016) 386 ITR 483(Bom)

The Ground/Grievance:
The appellant assessee challenged jurisdiction of Asessing Officer (AO) to make addition while framing assessment under section 143(3) read with section 153A of the Income Tax Act, 1961 (Act).

Brief Facts of the Case:
The assessee had not raised the current ground before the CIT(A) and raised it before the Tribunal for the first time. The Tribunal allowed it observing that the issue raised was purely of legal nature and concerned with the jurisdiction of the AO.

The return of income was filed by the appellant assessee on 12.2.2009 u/s 139(1). Later, a search was conducted on 18.2.2010 on the assessee under section 132 of the Act. Thereafter, a notice under section 153A was issued calling upon the assessee to file return of income. The assessee complied with the notice by filing return of income along with computation of income. The AO passed order under section 143(3) r.w.s. 153A dated 27.12.2011 making addition in respect of expenditure attributable to the earning of exempt income in terms of provisions of section 14A of the Act.

Contentions of the Assessee:
The assessee submitted that since the return of income was filed on 12.2.2009 and no notice u/s 143(2) was issued which could have been issued under the provisions 143(2) up to six months from the end of financial year in which the return of income filed by the assessee i.e. upto 30.09.2009. However, no such notice was issued and therefore, the return filed by the assessee had attained finality.

In other words, the assessment had attained finality on the date of search and therefore any addition could be made in case of assessment which had attained finality only with regard and reference to the seized incriminating documentary material during search.

It was submitted that in the case of assessee no incriminating material was seized and the only addition made by the AO in the order passed under section 143(3) r.w.s. 153A was in respect of expenditure attributable to the earning of exempt income in terms of provisions of section 14A. It was obviously and apparently not based on any incriminating material found during the course of search by the search party. Therefore, the AO had no jurisdiction to make disallowance under section 14A without reference to the incriminating material as stated above.

It was further submitted that since the assessment in the instant year had attained finality the addition made by the AO was without jurisdiction in terms of provisions of section 153A of the Act and required to be deleted.

Observations made by the Tribunal:
The Tribunal observed that return of income was filed by the assessee on 12.2.2009 and no notice was issued under section 143(2) to the assessee. The period for issuing such notice had expired on 30.9.2009 under the provisions of section 143(2) whereas the search was conducted on 18.2.2010.

The Tribunal observed further that according to the provisions the AO shall make the assessment in respect of six preceding years prior to the financial year during which the search is conducted. It is further provided in the said section that the assessment which are pending on the date of search shall abate, the AO has same powers to make assessment as he has powers under section 143(3) of the Act and each and every issue is open to be examined by the AO during the course of assessment proceedings. Whereas in respect of those years which have attained finality out of six years, the AO has very limited powers and jurisdiction to make addition only with reference to the incriminating material found during the course of search and not otherwise. In other words, the AO cannot dispute and disturb already completed and finalized assessment by making additions which have no connections or relevance with the seized material.

The ITAT noted that there was no materials found during search by search party with respect to addition made by the AO.

Held:
It was held that the assessment for the year in question was complete and finalized on the date of search and therefore addition as made by the AO u/s 14A in respect of expenses relating to the exempt income was without jurisdiction u/s 143(3) read with section 153A and accordingly, the AO was directed to delete the addition made.