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Income Tax Appellate Tribunal, DELHI BENCHES : A : NEW DELHI
Before: SHRI R.S. SYAL, AM & MS SUCHITRA KAMBLE, JM
ORDER PER R.S. SYAL, AM: This appeal filed by the assessee arises out of the order passed by the CIT(A) on 24.12.2013 in relation to the assessment year 2007-08.
The only issue raised in this appeal is against the confirmation of disallowance of a sum of Rs.8,40,000/- u/s 40A(3) of the Act on the ground that the AO did not have any jurisdiction to pass the assessment order u/s 153A.
Briefly stated, the facts of the case are that the assessee is engaged in purchase and sale, exchange, lease, etc. of immovable property and moveable property. A search and seizure operation u/s 132 of the Act was carried out on 21.1.2011 in DS Group of cases. In response to notice u/s 153A issued on 9.1.2012, the assessee filed a return of income declaring a loss of Rs.23,399/-. The AO noticed during the course of assessment proceedings that the assessee made certain cash payments for purchase of land. He invoked the provisions of section 40A(3) of the Act and made disallowance for a sum of Rs.8,40,000/-. The ld. CIT(A) confirmed the addition on merits.
At the very outset, the ld. counsel for the assessee contended that the disallowance u/s 40A(3) is not based on any incriminating material found during the course of search. It was submitted that such a disallowance is unwarranted because the assessment for the instant year already stood completed on the date of search. In support of this proposition, he relied on the judgment of the Hon’ble Delhi High Court in CIT vs. Kabul Chawla (2016) 380 ITR 573 (Del). In the opposition, the ld. DR relied on the impugned order.
We have heard the rival submissions and perused the relevant material on record. The Hon’ble Delhi High Court in the case of Kabul Chawla (supra) has held that no addition can be made to the income already assessed if no incriminating material is found during the search.
The assessee in the instant case filed original return of income u/s 139(1) of the Act on 24.10.2005. A copy of the return physically received by the Department on 05.11.2005, is placed on record. The ld. AR contended that no notice u/s 143(2) was issued by the AO for the instant year. This contention remained uncontroverted on behalf of the Revenue. This shows that the assessee filed its return u/s 139(1) of the Act which was duly processed u/s 143(1) of the Act, thereby assigning finality to the assessment, because no notice u/s 143(2) was issued for completing assessment u/s 143(3). It indicates that the assessment for the instant year stood completed on the date of search. Going by the verdict given by the Hon’ble Delhi High Court in the case of Kabul Chawla (supra) that no addition can be made otherwise than those based on incriminating material found during the course of search in the case of completed assessments on the date of initiation of search, we find that the instant disallowance u/s 40A(3), which is not based on any incriminating material found during the course of search, cannot be sustained. We, therefore, order for the deletion of the addition on this legal ground.
In view of the above decision on the preliminary legal issue, there is no need to take up the disallowance u/s 40A(3) on merits.
In the result, the appeal is allowed in above terms.
The order pronounced in the open court on 28.07.2016.