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Income Tax Appellate Tribunal, I Bench, Mumbai
Before: Shri Saktijit Dey & ShriN.K. PradhanShri Ashok Jasraj Jain
This appeal has been filed by the Revenue against the order of the Commissioner of Income Tax (Appeals)-54, Mumbai, dated 13.06.2016, for Assessment Year 2010-11.
The issue raised in the grounds is in relation to deletion of disallowance made by the Assessing Officer(AO) under Section 14A of the Income Tax Act (hereinafter “the Act”).
Brief facts of the case are that the assessee, an individual, filed his return of income for the impugned assessment year on 30.09.2010 declaring total income of `1,00,13,819/-. The return of income filed by the assessee was processed under Section 143(1) of the Act on 02.05.2011 determining the income at `1,00,69,147/-. Subsequently, on 12.10.2011 a search and seizure operation under Section 132 of the Act was conducted in the case of M/s. Pipavav Defence and Offshore Engineering Co. Ltd. and its group concerns and related persons. As a result, assessee was also covered under the said search and seizure operation. In pursuance to the search and Shri Ashok Jasraj Jain seizure operation the AO initiated assessment proceedings under Section 153A of the Act by issuing notice under the said provision on 21.08.2013 calling upon the assessee to file his return of income for the impugned assessment year. In response to the said notice assessee filed his return of income on 31.01.2013 declaring total income at `95,83,189/-. During the assessment proceedings, on verifying the audited financial accounts of the assessee as well as the return of income, the AO found that, though, the assessee has made investments in exempt income yielding assets, however, it has not disallowed any expenditure under Section 14A of the Act r.w. Rule 8D of the I.T. Rules. Accordingly, after calling for an explanation from the assessee the AO proceeded to compute the disallowance under Section 14A r.w. Rule 8D, which worked out to `40,00,555/-.
Being aggrieved by the disallowance made under Section 14A of the Act assessee preferred an appeal before the CIT(A). The learned CIT(A) considering the submissions of the assessee in the context of facts and materials on record and found that the original assessment in the case of assessee was completed under Section 143(1) of the Act on 02.04.2011, i.e. before initiation of search and seizure operation on 12.01.2011. He also took note of the fact that the time limit for issue of notice under Section 143(2) of the Act has also expired before the date of initiation of search. Thus, on the date of search assessment proceedings for the impugned assessment year was not pending before the AO, meaning thereby that the assessment for the impugned assessment year was not abated as on the date of search. Thus, the learned CIT(A) held that since the disallowance made under Section 14A r.w. Rule 8D was not on the basis of any incriminating material found during the course of search and seizure operation, it could not have been made in an assessment completed under Section 153A of the Act. Accordingly, he deleted the addition.
The learned Departmental Representative relied upon the grounds raised in the appeal.
The learned Authorized Representative relied upon the observations of the learned CIT(A).
Shri Ashok Jasraj Jain 7. We have considered rival submissions and perused the material on record. The undisputed facts are, the assessee has filed its return of income under Section 139(1) of the Act on 30.09.2010 and the said return of income was processed under Section 143(1) of the Act on 02.05.2011. It is also not disputed that on the date of search and seizure operation on 12.10.2011 no assessment proceedings for the impugned assessment year was pending before the AO. Thus, it is not a case of abated assessment proceeding which has to be completed under Section 153A of the Act. It is neither denied nor disputed by the learned D.R. that the disputed disallowance under Section 14A r.w. Rule 8D was not on the basis of any incriminating material found as a result of search and seizure operation carried out in the case of the assessee. Rather, the AO on the basis of the audited accounts of the assessee has found out the investments made and proceeded to make the disallowance under Section 14A r.w. Rule 8D. In case of Commissioner of Income Tax Vs Continental Warehousing Corporation (Nhava Sheva) Ltd. (2015) 374 ITR 645, the Hon'ble Jurisdictional High Court has upheld the decision of the ITAT, Mumbai Special Bench holding that in a case where assessment proceeding was not pending on the date of search and seizure operation, the AO in a proceeding under Section 153A of the Act retains the power to assess or reassess income on the basis of incriminating material found as a result of search. In the present case the disallowance made under Section 14A r.w. Rule 8D is not on the basis of any incriminating material found as a result of search. That being the case, learned CIT(A) was justified in deleting the disallowance/addition made by the AO under Section 14A r.w. Rule 8D. Grounds raised by the Revenue are dismissed.
In the result, the appeal filed by the Revenue is dismissed.