2019 (8) TMI 774 - AT - Income Tax

Validity of issue of notice u/s 153C - additions made without having seized material - HELD THAT - There is no dispute that in this case, by the time the search was conducted, the assessment was unabated and no incriminating material was found and seized from the premises of the person searched. The department has not placed any evidence to show that the incriminating material was available for the impugned assessment year. The only issue in this case is with regard to the addition of ₹ 1,07,55,000/- for which the CIT(A)has given a finding that the said amount was already admitted in the books of accounts and the assessee filed the return of income - AO made the addition on the basis of the capital account which was filed in the original return of income. No incriminating material was made available during the course of search. Notice issued u/s 153C is invalid and accordingly, we quash the notice issued u/s 153C and annul the assessment made u/s 143(3) r.w.s.153C - Decided in favour of assessee.

Summary

Issues:
Validity of notice u/s 153C for completed assessments without incriminating material found during search

Analysis:

1. The appeal was filed by the revenue against the order of the CIT(A) regarding the Assessment Year 2014-15. The AO had issued a notice u/s 153C after a search operation, making additions to the income of the assessee. The CIT(A) upheld the invocation of section 153C but deleted the addition, stating that the gifts received were duly accounted for in the books of accounts and were not based on incriminating material.

2. The main issue raised was the validity of the notice u/s 153C for completed assessments without any incriminating material found during the search. The assessee argued that since the search was conducted after the time limit for issuing notice u/s 143(2) had expired, invoking section 153C was impermissible. The AO had made additions without any seized incriminating material.

3. The ITAT analyzed the facts and legal provisions, emphasizing that for completed assessments, the AO cannot invoke section 153C without seized material. Referring to previous tribunal and court decisions, it was held that incriminating material seized must pertain to the relevant assessment year. The ITAT cited cases where notices u/s 153C were quashed due to lack of incriminating material and jurisdictional requirements not being met.

4. Ultimately, the ITAT quashed the notice u/s 153C and annulled the assessment made u/s 143(3) r.w.s.153C, as no incriminating material was found during the search, and the additions were not based on seized evidence. The appeal of the revenue was dismissed, and the cross objections of the assessee were allowed, rendering the remaining grounds in the cross objection moot.

5. The judgment highlighted the importance of incriminating material and jurisdictional requirements for invoking section 153C, ensuring that assessments are based on relevant and valid evidence. The decision provided clarity on the legal provisions and upheld the principle that assessments should be supported by seized material to maintain fairness and legality in tax proceedings.