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Facts
The assessee company filed its return for AY 2016-17. A search was conducted on a group company, and subsequently, a notice u/s 153A was issued to the assessee. The Assessing Officer made an addition of Rs. 2,73,603/- u/s 40A(3) alleging violation of cash payment provisions. The CIT(A) confirmed the addition.
Held
The Tribunal held that since the original assessment was completed and no proceedings were pending on the date of search, the assessment u/s 153A is bad in law, especially in the absence of any incriminating material. Furthermore, the disallowance u/s 40A(3) was not sustainable on merits as the cash payments were advances to project managers and within the prescribed limits.
Key Issues
Whether assessment u/s 153A is valid without any pending proceedings or incriminating material found during search. Whether the disallowance u/s 40A(3) for cash payments is justified.
Sections Cited
153A, 40A(3), 143(3), 132(1), 133A, 143(2), 6DD
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “D” BENCH KOLKATA
Before: Shri Sonjoy Sarma & Shri Rakesh Mishra
order
: February 26, 2025 ORDER
Per Sonjoy Sarma, Judicial Member:
The present appeal has been preferred by the assessee against an order dated 09.09.2024 of the Commissioner of Income Tax (Appeals)-27, Kolkata [hereinafter referred to as ‘CIT(A)’] passed u/s 250 of the Income Tax Act (hereinafter referred to as the ‘Act’).
At the outset, the Registry has informed that there is a delay of 6 days in filing the present appeal. The assessee filed an application for condonation of delay stating reasons for such delay. After considering the application, we find reasonable cause and the delay was not intentional. We, therefore, condone the delay in filing the appeal and adjudicate the appeal on merits of the case.
The assessee in the instant appeal has raised various grounds but the primary issue under consideration is that an addition made by the Assessing Officer u/s 40A(3) of the Act alleging the violation of provision of cash payment and whether the assessment made u/s 153A r.w.s.
Assessment Year: 2016-17 M/s Exhibits India Pvt. Ltd. 143(3) of the Act is violated in the absence of any incriminating material found during the search operation.
Brief facts of the case are that the assessee is a company and filed its return of income for the assessment year 2016-17 on 14.10.2016 declaring total income of Rs.20,97,320/- under the normal provisions of the Act. Subsequently, a search operation u/s 132(1) and survey u/s 133A of the Act were conducted on 10.02.2021 in the case of Genesis group of company, of which the assessee is one of the related persons of the group. During the course of search, no incriminating documents or materials were found pertaining to the assessee. Thereafter, a notice u/s 153A of the Act was issued and the assessee filed a return on 29.10.2021. The Assessing Officer completed the assessment u/s 143(3) r.w.s. 153A on 07.03.2022 by making an addition of Rs.2,73,603/- u/s 40A(3) of the Act assessing total income of the assessee at Rs.23,70,920/-.
Aggrieved by the said order, the assessee filed an appeal before the ld. CIT(A) who confirmed the addition so made by the Assessing Officer.
Dissatisfied with the order of the ld. CIT(A), the assessee preferred the appeal before this Tribunal. At the time of hearing, the ld. AR stated that the assessment for the assessment year 2016-17 was concluded on 07.03.2022 when there were no assessments pending on the date of search dated 10.02.2021 and as per the 2nd Proviso to section 153A, only assessments that are pending on the date of search, can be reopened. The ld. AR emphasised that no incriminating materials were found during the search operation to warrant any addition u/s 153A of the Act to be made. He, therefore, stated that the alleged addition made by the Assessing Officer is contrary to the provisions of the Act and needs to be deleted. He further submitted that even on merits, the disallowance u/s 40A(3) of the Act was not justified as the cash payments were made in Assessment Year: 2016-17 M/s Exhibits India Pvt. Ltd. advance to the various project mangers acting as assessee’s agent and not directly to any parties. The project manager disbursed these amounts to various parties organizing exhibitions and managing expenses. The ld. AR stated that the cash payments made by the assessee were duly recorded in the books of accounts of the assessee. In support of the above contention, the ld. AR relied on the decision of the Hon’ble Supreme Court as in the case of PCIT vs. M/s Abhisar Buildwell Pvt. Ltd. reported in [2023] 149 taxmann.com 399 (SC), wherein, it was held that completed assessment cannot be interfered with u/s 153A unless incriminating material found during the search operation and he also cited another decision of Hon’ble Punjab & Haryana High Court in the case Vipin Khanna vs. CIT reported in 255 ITR 220 (PH), wherein, the Hon’ble Punjab & Haryana High Court has expressed the similar view.
On the other hand, the ld. DR supported the order of the lower authorities and stated that assessment u/s 153A was rightly made and the ld. CIT(A) correctly upheld the order of the Assessing Officer by confirming the addition u/s 40A(3) of the Act. He argued that the cash payments made by the assessee violated the provision of section 40A(3) of the Act and the disallowance made by the Assessing Officer u/s 40A(3) was justified.
We, after hearing the rival submissions and perusing the materials available on record, find that original assessment for the assessment year 2016-17 was completed and no proceedings were pending on the date of search i.e. 10.02.2021 and the due date for issuance of notice u/s 143(2) had expired on 30.09.2017 to conclude the assessment proceedings. We note that as in the case of the assessee, no proceeding was pending on the date of search and there is no evidence of any incriminating material was found during the said search, thus the assessment u/s 153A is bad in law. We rely on the settled position of law laid down by the Hon’ble Assessment Year: 2016-17 M/s Exhibits India Pvt. Ltd. Supreme Court in the case PCIT vs. M/s Abhisar Buildwell Pvt. Ltd. (supra) that assessment order u/s 153A cannot be disturbed when the assessment was completed unless there is any incriminating material found during the search. We further note that even on merit, the disallowance of Rs.2,73,603/- made u/s 40A(3) of the Act is not sustainable as the assessee provided sufficient evidence by showing that the cash payments were in the nature of advance given to its project manager and no direct payments were made to any parties and also the payments were in fact made for organising exhibitions and for expenses at various locations where no banking facilities were available, which is an accepted exception under Rule 6DD of the I.T. Rules. Furthermore, the assessee produced supporting documents including cash books and ledger accounts which demonstrate that cash payments were below the prescribed threshold limit of Rs.20,000/- per day to a single person. We, therefore, find that the ld. CIT(A) and the Assessing Officer failed to consider the above facts properly. In view of the above, the assessment order u/s 153A r.w.s. 143(3) is quashed as it is not legally sustainable in the absence of any incriminating material found during the search. Accordingly, the addition of Rs.2,73,603/- is hereby deleted as the payments were advanced to project managers, duly accounted for in regular books of accounts and do not violate the provisions of Act.
In terms of the above, the appeal of the assessee is allowed.
Kolkata, the 26th February, 2025.