2017 (12) TMI 1756 - AT - Income Tax

Assessment u/s 153A - Addition on account of employees contribution to ESI and PF - whether no incriminating document was found during the course of search pertaining to the assessment year under consideration ? - HELD THAT - Assessment in question was framed u/s 153A is not based on any incriminating material found or seized and therefore, the addition made by the AO on account of employees Contribution to ESI and PF is not justified and the same is deleted by following decisions of Delhi High Court in case Pr. CIT vs. Meeta Gutgutia 2017 (5) TMI 1224 - DELHI HIGH COURT - Decided in favour of assessee.

Summary

Issues Involved:
1. Legality of assessment under Section 143(3) read with Section 153A of the Income Tax Act, 1961.
2. Validity of additions made without incriminating material found during the search.

Issue-Wise Detailed Analysis:

1. Legality of Assessment under Section 143(3) read with Section 153A:
The assessee contested the assessment completed under Section 143(3) read with Section 153A, arguing that no incriminating paper was found during the search pertaining to the year under appeal. The additions made by the Assessing Officer (AO) were not supported by any material discovered during the search. The original return filed by the assessee was processed under Section 143(1), and no assessment was pending when the search was conducted. The AO issued a notice under Section 153A, and the assessee filed its return declaring the same income as in the original return. The AO made an addition of ?26,183 on account of employees' contribution to ESI and PF, which was challenged by the assessee on the grounds that it was not based on any incriminating material found during the search.

2. Validity of Additions Made Without Incriminating Material Found During the Search:
The assessee argued that the AO could not make any additions in the absence of incriminating material found during the search. The legal position, as established by various High Courts, including the jurisdictional High Court, is that completed assessments can only be disturbed based on incriminating material found during the search. The AO's action was contrary to the law, as upheld in several precedents, including Jai Steel India v. ACIT, CIT vs. Kabul Chawla, and Pr. CIT vs. Meeta Gutgutia. The assessee contended that the AO's assessment under Section 153A was not justified as it was not based on any seized material.

Tribunal's Findings:
The Tribunal noted that the assessment for the year under consideration was not pending at the time of the search, and the AO's assessment under Section 153A was for reassessment purposes. The Tribunal observed that the AO accepted the income declared by the assessee in the original return, except for the disallowance of ?26,183. The assessment order did not mention any incriminating document found during the search, and the Revenue did not dispute this fact. The Tribunal referred to the Delhi High Court's decision in Pr. CIT vs. Meeta Gutgutia, which held that additions could not be made without incriminating material found during the search. The Tribunal concluded that the AO's addition of ?26,183 was not justified and deleted the same.

Conclusion:
The Tribunal allowed the appeal of the assessee, holding that the assessment under Section 153A was not based on any incriminating material found during the search, and therefore, the addition made by the AO was not justified. The order was pronounced in the open court on 27/12/2017.