2017 (4) TMI 470 - AT - Income Tax

Assumption of jurisdiction u/s 153C - proof of incriminating material found during the search and seizure operation - Held that - AO has completed the assessment u/s. 153C of the I.T. Act, 1961 and made the addition in dispute without any incriminating material found during the search and seizure operation and the addition in this case was purely based on the material already available on record, which is not sustainable in the eyes of law, hence, needs to be deleted. Also on the perusal of the assessment order undisputedly indicates that no reference whatsoever has been made to any material found/ seized during the course of search. Thus we delete the addition in dispute and allow the appeal of the Assessee because AO has completed the assessment and made the addition in dispute without any incriminating material found during the search and seizure operation and the addition in this case was purely based on the material already available on record, which is not sustainable in the eyes of law. - Decided in favour of assessee

Issues Involved:
1. Legality of the reassessment and change of opinion.
2. Addition of unexplained cash credits under Section 68 of the Income Tax Act, 1961.
3. Consideration of additional evidence filed by the assessee.
4. Procedural and substantive compliance with Section 153C of the Income Tax Act, 1961.
5. Validity of additions not based on incriminating material found during the search.

Issue-wise Detailed Analysis:

1. Legality of the reassessment and change of opinion:
The appellants contended that the reassessment was bad in law as it was not framed on the basis of seized material pursuant to an action under Section 132 of the Income Tax Act but was instead based on a change of opinion. The Tribunal noted that the reassessment was initiated without any incriminating material found during the search and seizure operation. The reassessment was based purely on the material already available on record, which is not permissible under the law. The Tribunal held that the reassessment was illegal and quashed the order.

2. Addition of unexplained cash credits under Section 68 of the Income Tax Act, 1961:
The appellants challenged the addition of unexplained cash credits made by the Assessing Officer (AO) under Section 68. The Tribunal observed that the AO made the additions without any incriminating material found during the search. The Tribunal referred to the decision of the Hon’ble Delhi High Court in the case of CIT v. Kabul Chawla, which held that in the absence of any incriminating material, completed assessments can only be reiterated, and no additions can be made. Consequently, the Tribunal deleted the additions made under Section 68.

3. Consideration of additional evidence filed by the assessee:
The appellants argued that the CIT(A) erred in not considering the additional evidence filed. The Tribunal did not specifically address this issue in detail, as the primary ground for quashing the assessment was the lack of incriminating material found during the search. The Tribunal's decision to delete the additions rendered this issue academic and not adjudicated upon.

4. Procedural and substantive compliance with Section 153C of the Income Tax Act, 1961:
The appellants raised additional legal grounds challenging the assumption of jurisdiction under Section 153C. The Tribunal admitted the additional grounds, citing the Supreme Court's decision in National Thermal Power Corporation Limited, which allows raising new legal grounds at any stage if they pertain to a question of law. The Tribunal found that the AO did not follow the procedural requirements under Section 153C, as there was no satisfaction note recorded by the AO of the searched person that the seized documents belonged to the appellants. The Tribunal relied on several judgments, including PepsiCo India Holdings (P.) Ltd v. ACIT, to conclude that the assumption of jurisdiction under Section 153C was invalid.

5. Validity of additions not based on incriminating material found during the search:
The Tribunal emphasized that additions under Section 153C should be based on incriminating material found during the search. In the present case, the AO made the additions without any such material. The Tribunal referred to the decision in Kabul Chawla, which held that in the absence of incriminating material, no additions could be made to the income already assessed. Consequently, the Tribunal deleted the additions made by the AO.

Conclusion:
The Tribunal allowed all four appeals filed by the assessees, quashing the reassessment orders and deleting the additions made under Section 68. The Tribunal held that the reassessment was illegal due to the lack of incriminating material and non-compliance with procedural requirements under Section 153C. The decision was based on the principles laid down in various judicial precedents, ensuring that the assessments were conducted in accordance with the law.

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