S. 153A assessment is mandatory even if no incriminating material is found. Distinction between “developer” and “works contractor” in s. 80-IA(4) explained

ACIT vs. Pratibha Industries Ltd (ITAT Mumbai)

S. 153A assessment is mandatory even if no incriminating material is found. Distinction between “developer” and “works contractor” in s. 80-IA(4) explained

A search and seizure action u/s 132 was conducted on the premises of the assessee. No incriminating material or evidence was found to indicate that there was any undisclosed income. The AO passed an order u/s 153A for AY 2000-01 to 2005-06 in which he took the view that the assessee was not entitled to claim deduction u/s 80IA(4) on the ground that it was a contractor and not a developer of infrastructure projects. The Tribunal had to consider two issues: (a) whether if the assessments for the concerned years have attained finality and no incriminating is found in the course of the search, the AO has jurisdiction to proceed u/s 153A and (b) how to distinguish between a “developer” and a “works contractor” for purposes of s. 80-IA(4). HELD by the Tribunal:

(i) Three possible circumstances emerge on the date of initiation of search u/s 132(1): (a) proceedings are pending; (b) proceedings are not pending but some incriminating material is found in the course of search, indicating undisclosed income and/or assets and (c) proceedings are not pending and no incriminating material has been found. Circumstance (a) is answered by the Act itself, that is, since the proceedings are still pending, all those pending proceedings are abated and the AO gets a free hand to make the assessment. Circumstance (b) has been answered in Anil Bhatia to hold that while there is no question of any abatement since no proceedings are pending, the AO is entitled to reopen the assessment (without having to comply with the strict conditions of s. 147, 148 and 151) and bring the undisclosed income to tax. Also, in All Cargo Global Logistics Ltd 137 ITD 287 (Mum)(SB) it was held that in the case of a non-abated assessment, an assessment u/s 153A has to be made on the basis of incriminating material. Circumstance (c) has been kept open and left unanswered. Circumstance (c) has to be answered to say that even where there is/are no pending proceedings and no incriminating material has to be found, the AO is still required to pass an order u/s 153A though the assessed income will have to be the same as the originally assessed income as there was no incriminating material. Accordingly, the assessee’s argument that when there is no incriminating material or assets, then there is no jurisdiction to proceed u/s 153A is not acceptable. S. 153A contains a non-obstante clause and is triggered automatically whenever a search is undertaken. The fact that no incriminating material was found has no bearing on the applicability of s. 153A; Read more