2016 (6) TMI 127 - AT - Income Tax

Assessment u/s 153A - Held that - Section 153A does not authorise the making of a de novo assessment in this particular assessment year. While under the first proviso, the AO is empowered to frame assessment for six years, under the second proviso only assessments which are pending on the date of initiation of search abate. The effect is that completed assessments do not abate. The assessments can be said to be pending only if the AO is statutorily required to do something further. If the section 143(2) notice has been issued, the assessment can be said to be pending. However the assessment in respect of a return processed u/s 143(1) is not pending because the AO is not required to do anything further about such a return. The power given by the first proviso to assess income for six assessment years has to be confined to the undisclosed income unearthed during search and cannot include items which are disclosed in the original assessment proceedings. It is seen on facts that as the return for the year had been processed u/s 143 (1) the assessment was not pending and as no material was found during the search, the addition has no feet to stand. Hon ble High Court of Delhi in CIT Central III vs. Kabul Chawla (2015 (9) TMI 80 - DELHI HIGH COURT ) we find that the addition of ₹ 4 lacs has been wrongly added to the income of the assessee.- Decided in favor of assessee

Summary

Issues:
Assessment of unexplained gifts under section 153A of the Income Tax Act, 1961 without incriminating material found during search operation.

Analysis:
The appeal pertains to an assessment year where the assessee declared income of &8377; 77,280. Subsequently, during a search and seizure operation, the Assessing Officer found that the assessee had received two gifts of &8377; 2 lacs each, totaling &8377; 4 lacs. The addition of &8377; 4 lacs was made to the assessee's income as confirmations from the donors could not be obtained. The assessee contended that since no incriminating material was found during the search, the addition was not justified under section 153A. The First Appellate Authority upheld the addition, leading to the current appeal.

The key contention raised by the assessee was that the addition of &8377; 4 lacs was not valid under section 153A as no incriminating material was discovered during the search operation. The assessee argued that the regular return had been filed, disclosing the relevant information which was accepted under section 143(1) of the Act. The Tribunal observed that section 153A does not authorize a de novo assessment for this particular assessment year. Assessments that are finalized do not abate under the second proviso of section 153A, and the power to assess income for six years is limited to undisclosed income unearthed during the search, not items disclosed in the original assessment.

The Tribunal further referenced a judgment by the Hon'ble High Court of Delhi in a similar case, emphasizing that in the absence of incriminating material, completed assessments can be reiterated, and abated assessments can be made. The assessment under section 153A must be based on seized material, and additions should have a relevant nexus with the seized material. As no incriminating material was found during the search in the present case, the Tribunal held that the addition of &8377; 4 lacs was unjustified. Citing the High Court's decision, the Tribunal allowed the appeal, concluding that the addition to the assessee's income was erroneous.

In conclusion, the Tribunal ruled in favor of the assessee, stating that the addition of &8377; 4 lacs to the income was not supported by incriminating material found during the search operation. The Tribunal's decision was based on the interpretation of section 153A and the principles outlined in the High Court's judgment, emphasizing the necessity of a nexus between additions and seized material for assessments under section 153A.