2016 (6) TMI 450 - AT - Income Tax

Scope of jurisdiction u/s. 153A - incriminating material found during the course of search - Held that - Additions made by the AO are beyond the scope of section 153A of the Income Tax Act, 1961, because no incriminating material or evidence had been found during the course of search so as to doubt the purchases. It was noticed that as on the date of search i.e. 26.4.2010, no assessment proceedings were pending for the year under consideration and the AO was not justified in disturbing the concluded assessment without there being any incriminating material being found in search. In fact, in the entire assessment order, the AO has not referred to any seized material or other material for the year under consideration having being found during the course of search in the case of assessee, leave alone the question of any incriminating material for the year under appeal. Therefore, in our considered opinion, the action of the AO is based upon conjectures and surmises and hence, the additions made on the assessed bogus purchases is not sustainable in the eyes of law, because this issue in dispute is now no more res-integra in view of decision of CIT vs. Kabul Chawla 2015 (9) TMI 80 - DELHI HIGH COURT - Decided in favour of assessee

Issues:
1. Addition of alleged bogus purchase beyond jurisdiction of section 153A.
2. Validity of assessment order passed under section 153A.
3. Application of section 153A in the case.
4. Sustainability of additions without incriminating material.
5. Precedent set by the decision in the case of CIT vs. Kabul Chawla.

Issue 1: Addition of alleged bogus purchase beyond jurisdiction of section 153A
In the case for assessment year 2006-07, the Assessee challenged the addition of ?1,66,62,715 made by the Assessing Officer (AO) on account of alleged bogus purchase, contending that it was beyond the jurisdiction of provisions of section 153A of the Income Tax Act, 1961. The Assessee argued that the CIT(A) erred in confirming the addition. The Tribunal found that the additions made by the AO were not sustainable under section 153A as no incriminating material or evidence was found during the search operation to doubt the purchases. The AO had not referred to any seized material or other material found during the search related to the year under consideration. Therefore, the Tribunal held that the action of the AO was based on conjectures and surmises, and the additions were not legally sustainable.

Issue 2: Validity of assessment order passed under section 153A
The Assessee contended that the assessment order passed under section 153A for the assessment year 2006-07 was not valid, citing a decision of the Hon’ble Delhi High Court in the case of CIT(Central)-III vs. Kabul Chawla. The Assessee argued that if additions were made without any incriminating material found during the search operation, they were not sustainable in law. The Tribunal, relying on the precedent set by the Hon’ble Delhi High Court, held that the assessment and additions made by the AO without any incriminating material were not justified and were beyond the scope of section 153A. Therefore, the Tribunal allowed the appeal of the Assessee for the assessment year 2006-07.

Issue 3: Application of section 153A in the case
The Tribunal analyzed the application of section 153A in the case, noting that the AO had invoked the provisions of section 153A based on the search and seizure operation conducted. However, since no incriminating material was found during the search to support the additions made, the Tribunal held that the application of section 153A by the AO was not valid in this scenario. The Tribunal emphasized that assessments under section 153A must be based on seized material, and in the absence of such material, the additions could not be sustained.

Issue 4: Sustainability of additions without incriminating material
The Tribunal reiterated that the additions made by the AO on account of alleged bogus purchases were not sustainable without any incriminating material found during the search operation. The Tribunal emphasized that the additions were purely based on material already available on record and not on any new evidence discovered during the search. Therefore, the Tribunal concluded that the additions made without incriminating material were not legally tenable and, as per the decision in the case of CIT vs. Kabul Chawla, the additions were deleted.

Issue 5: Precedent set by the decision in the case of CIT vs. Kabul Chawla
The Tribunal heavily relied on the decision of the Hon’ble Delhi High Court in the case of CIT vs. Kabul Chawla to support its findings. The Tribunal followed the legal position outlined in the decision, emphasizing that assessments under section 153A must be based on incriminating material found during the search. The Tribunal applied the principles established in the cited case to rule in favor of the Assessee, highlighting the importance of incriminating material in making additions under section 153A. The Tribunal allowed the appeal for both assessment years 2006-07 and 2007-08 based on the precedent set by the decision in the case of CIT vs. Kabul Chawla.

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