2017 (9) TMI 459 - AT - Income Tax

Assessment completed u/s 153A - proof of incriminating paper found as a result of search - Held that - Sec. 153A is indeed an extremely potent power which enables the Revenue to reopen at least six years of assessments earlier to the year of search. It is not to be exercised lightly. It is only if during the course of search under Section 132 incriminating material justifying the reopening of the assessments for six previous is found that the invocation of Section 153A qua each of the assessment years would be justified. If no incriminating materials were found during the course of search in respect of an issue, then no additions in respect of any issue can be made to the assessment u/s 153A and 153C. In the present case, it is not the case of revenue that the assessment has been framed on the basis of incriminating material found during the course of search. The Hon ble Jurisdictional High Court in the case of Jai Steel (India) vs. ACIT 2013 (6) TMI 161 - RAJASTHAN HIGH COURT as relied by the assessee and also held that for the completed assessment, same can be tinkered only based on the incriminating material found during the course of search or requisition of documents. Therefore, the assessment in the case, where the assessment has been completed or not pending on the date of search. The Assessing Officer can frame assessment only on the basis of the incriminating material gathered during the course of search. The Revenue has not placed any material on record suggesting that the impugned assessment was framed on the basis of incriminating material. - Decided in favour of assessee.

Summary

Issues Involved:

1. Legality of the assessment under Section 153A of the Income Tax Act, 1961.
2. Sustaining the disallowance of ?72,000 on account of rent paid.
3. Sustaining an addition of ?2,60,713 as unexplained investment in house construction.

Issue-wise Detailed Analysis:

1. Legality of the assessment under Section 153A:

The primary contention raised by the assessee was that the assessment under Section 153A was invalid as no incriminating material was found during the search pertaining to the assessment year under appeal. The assessee argued that the additions made were solely based on statements recorded during the search without any corroborative material. The assessee cited various judicial pronouncements, including the case of All Cargo Global Logistic Ltd. vs. DCIT and CIT vs. Kabul Chawla, which established that no additions could be made under Section 153A if no incriminating material was found during the search. The CIT(A) dismissed this ground, citing that the Revenue had filed a Special Leave Petition (SLP) against the decision in the case of Kabul Chawla. However, it was noted that the SLP had been dismissed by the Supreme Court. The Tribunal, therefore, quashed the assessment, holding that the CIT(A) was not justified in rejecting the ground of the assessee, as no incriminating material was found during the search, and the assessment could not be reopened under Section 153A without such material.

2. Sustaining the disallowance of ?72,000 on account of rent paid:

The assessee contended that the CIT(A) erred in sustaining the disallowance of ?72,000 on account of rent paid, without appreciating the genuineness of the claim and the facts brought on record. However, since the assessment itself was quashed based on the first issue, this ground became infructuous and was not specifically adjudicated by the Tribunal.

3. Sustaining an addition of ?2,60,713 as unexplained investment in house construction:

The assessee argued that the CIT(A) erred in sustaining an addition of ?2,60,713 as unexplained investment in house construction, ignoring the facts and not allowing the credit of ?3,33,800 withdrawn by the assessee’s wife for construction purposes. The Tribunal noted that the CIT(A) had admitted the fact of the withdrawal by the assessee’s wife but still sustained the addition. However, as the assessment was quashed due to the lack of incriminating material, this ground also became infructuous and was not specifically adjudicated.

Conclusion:

The Tribunal allowed the appeal of the assessee, quashing the assessment under Section 153A due to the absence of incriminating material found during the search. Consequently, the grounds related to the disallowance of rent and the addition for unexplained investment became infructuous. The Tribunal’s decision was based on the established legal position that assessments under Section 153A could not be made in the absence of incriminating material, as reiterated in various judicial pronouncements.