Income Escaped for Assessment not Represented "in the form of an asset": ITAT quashes Addition u/s 153A Towards Bogus Purchase and Disallowance of Salary

The Mumbai Bench of Income Tax Appellate Tribunal (ITAT) has quashed the addition under Section 153A of the Income Tax Act, 1961 towards bogus purchase and disallowance of salary as the income escaped for assessment was not represented in the form of an asset.

The assessee Viraj Profiles Limited was engaged in the business of manufacture and sale of stainless steel products. A search and seizure action were carried in the hands of the assessee and its associates on 13.7.2017. Consequently, the assessments of the assessment years 2012-13 to 2017-18 were completed by the AO under Section 153A read with Section 143(3) of the Income Tax Act.

The present assessment year, AY 2011-12 fell beyond the period of six years mentioned in Section 153A(1) of the Income Tax Act. However, the AO could reopen the assessment of any year beyond the period of six years under Section 153A of the Income Tax Act by invoking the fourth provision to Section 153A(1) of the Income Tax Act.

The income escaped from assessment, if not represented in the form of asset, then the AO could not reopen the assessments of any of the assessment years falling beyond the period of six assessment years under the fourth provision to Section 153A of the Income Tax Act.

Pratik Jain, on behalf of the Income Tax Act submitted that, in AY 2011-12, the AO had not found any escaped income which represented "in the form of asset". He further submitted that the addition made towards alleged bogus purchases and disallowance of salary to a family member, was not represented by any form of asset

Manoj Kumar, on behalf of the revenue submitted that the AO had reopened the assessment of AY 2011-12 on noticing that the assessee had indulged in claiming bogus purchases and also there were payments to family members which were liable to be disallowed under Section 37 of the Act.

The two-member Bench of B.R. Baskaran (Accountant Member) and Pavan Kumar Gadale (Judicial Member) quashed the assessment order passed for AY 2011-12 holding that the AO had not shown that the alleged income escaped for assessment is represented "in the form of an asset".

“What was assessed in this year under Section 153A of the Income Tax Act was the addition towards alleged bogus purchases and disallowance of salary/professional fee under Section 37 of the Income Tax Act. It was not shown that the income, if any, generated out of these two disallowances is represented in the form of asset”, the Income Tax Appellate Tribunal Bench further observed.

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