2013 (1) TMI 803 - AT - Income Tax

Legal validity of additions made under section 153A - Held that - Additions in the assessments made under section 153A could be made only on the basis of incriminating material found during the search except in cases where assessment has abated - here no proceedings are abated thus no addition could be made unless some incriminating material was found - addition made on the facts of case are legally invalid - Decided in favor of assessee

Summary

Issues:
Challenge to additions made under section 153A without incriminating material found.

Analysis:
The appeals by the assessee were against orders of CIT(A) for the assessment years 2001-02, 2002-03, and 2004-05, challenging various additions made by the AO under section 143(3)/153A. The additional ground challenging the legal validity of additions made under section 153A without incriminating material was admitted by the Tribunal for adjudication.

The assessee, engaged in trading, had declared income in original returns. Following a search, the AO made additions for exempt income, cash credits, interest disallowances, and expense disallowances. CIT(A) confirmed the additions. The assessee contested the legal validity of additions under section 153A, arguing that no incriminating material was found during the search, thus additions were impermissible. The AO had made additions based on disclosed information, not incriminating material.

The Tribunal considered divergent views on section 153A's application without incriminating material. Referring to the Special Bench decision in Alcargo Global Logistics Ltd., it was held that additions under section 153A could only be based on incriminating material found during the search. The AO's reliance on disclosed information for additions was deemed legally invalid. The High Court's judgment in CIT vs. Anil Kumar Bhatia did not reverse the Special Bench's decision. Consequently, the Tribunal set aside the CIT(A)'s order and deleted the additions, concluding that the additions were legally invalid.

As the additions were deleted on legal grounds, the Tribunal did not delve into the merits of the assessee's challenges. Ultimately, the appeals of the assessee were allowed, and the additions made by the AO under section 153A were deemed legally invalid and deleted.

The judgment was pronounced on 18.1.2013 in favor of the assessee.