2020 (2) TMI 940 - AT - Income Tax

Assessment u/s 153A - absence of any incriminating material found in search - HELD THAT - As decided in KABUL CHAWLA 2015 (9) TMI 80 - DELHI HIGH COURT in absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word 'assess' in Section 153 A is relatable to abated proceedings (i.e. those pending on the date of search) and the word 'reassess' to completed assessment proceedings. Insofar as pending assessments are concerned, the jurisdiction to make the original assessment and the assessment under Section 153A merges into one. Only one assessment shall be made separately for each AY on the basis of the findings of the search and any other material existing or brought on the record of the AO. Completed assessments can be interfered with by the AO while making the assessment under Section 153 A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment. The present appeals on the date of the search the said assessments already stood completed. Since no incriminating material was unearthed during the search, no additions could have been made to the income already assessed. - Decided in favour of assessee

Summary

Issues:
Assessment based on incriminating material found during search proceedings; Additions made on various expenses; Application of Kabul Chawla case principles; Treatment of books of account as incriminating material; Unexplained cash deposits; Interpretation of Section 153A of the Income-tax Act.

Analysis:
The appeals by the Revenue for assessment years 2006-07 to 2011-12 were against the orders of the CIT(A) and were disposed of collectively due to common issues. The assessment stemmed from a search and seizure action under section 132 of the Income-tax Act, 1961, on Pasco Group cases, leading to the issuance of notice under section 153A of the Act. The Assessing Officer made additions on various expenses like bogus expenses, inflated transportation expenses, and disallowances under section 14A of the Act, without incriminating material. The CIT(A) held that since no incriminating material was found, following the principles of the Kabul Chawla case, the additions were not sustainable and directed their deletion.

The Revenue argued that the books of account seized during the search contained incriminating entries, such as bearer cheques, justifying the additions. However, the Tribunal found that the audited books of account alone could not be considered incriminating material. The entries related to bearer cheques were not found to be incriminating as they were linked to transactions with parties claiming rebates, not employees of the assessee. The Tribunal concluded that the additions lacked incriminating evidence and upheld the CIT(A)'s decision based on the principles outlined in the Kabul Chawla case.

In a specific case for the assessment year 2008-09, an addition was made for unexplained cash deposits. The Tribunal noted that these entries were duly reflected in the regular books of account, not detected through incriminating material, hence not falling under section 153A of the Act. Citing the Kabul Chawla case, the Tribunal emphasized that assessments under section 153A must be based on seized material and not arbitrary, supporting the deletion of additions by the CIT(A).

The Tribunal's detailed analysis of section 153A of the Act aligned with the principles laid down in the Kabul Chawla case, emphasizing the necessity of incriminating material for additions post-search. The appeals by the Revenue were dismissed, affirming the CIT(A)'s decision to delete the additions. The Tribunal's ruling highlighted the importance of adhering to legal precedents and ensuring assessments are based on relevant, incriminating material rather than arbitrary grounds.