2021 (9) TMI 465 - AT - Income Tax

Assessment u/s 153A - unexplained credits in the books of account u/s. 68 - whether any incriminating material that was unearthed during the search and seizure operations? - HELD THAT - As the returns of income for the assessment years 2008-09 and 2010-11 were filed on 27.09.2008 and 25.09.2010 respectively whereas search operation took place on 07.03.2014. Admittedly, the returns of income for both the assessment years were processed u/s.143(1) of the Act. Long prior to the search, the time period permissible for issuance of notice u/s. 143(2) by proviso thereunder expires. It leaves no doubt that as on the date of search, there were no assessments pending or were abated due to search. In CIT vs. Kabul Chawla, 2015 (9) TMI 80 - DELHI HIGH COURT has held that the assessment cannot be arbitrary or made without any relevance or nexus with the seized material and an assessment has to be made under this section only on the basis of seized material - completed assessments can be interfered with by the AO while making the assessment u/s 153A only on the basis of some incriminating material unearthed during the course of search or the documents requisitioned or undisclosed income/property discovered in the course of search. - Decided in favour of assessee.

Summary

Issues:
Validity of additions made by the Assessing Officer based on statement of Mr. Brijesh Bhagat without corroborative evidence.
Sustainability of additions in absence of incriminating material found during search.
Validity of reopening proceedings without incriminating material in a concluded assessment.

Analysis:

Issue 1: Validity of additions based on statement of Mr. Brijesh Bhagat
The case involved appeals by the Revenue against the deletion of additions made by the Assessing Officer based on the statement of Mr. Brijesh Bhagat. The Commissioner of Income Tax (Appeals) held that the addition lacked proof or corroborative evidence to establish the transactions as bogus. It was noted that the statement by Mr. Bhagat was retracted, and the Assessing Officer did not provide an opportunity for the assessee to be heard regarding the retraction. The Tribunal, in line with previous judgments, emphasized that a statement alone cannot be the sole basis for additions without additional material discovered during search and seizure operations. The Tribunal found no reason to interfere with the Commissioner's conclusions, ultimately dismissing the Revenue's appeals.

Issue 2: Sustainability of additions without incriminating material
The assessee challenged the additions on the grounds that no incriminating material was found during the search for the relevant assessment years. Citing the decision in CIT vs. Kabul Chawla, the Commissioner observed that additions without incriminating material are unsustainable. The Tribunal agreed with this position, noting that assessments must be based on seized material and any additions made without such material are arbitrary. As there was no incriminating material unearthed during the search and seizure operations, the Tribunal allowed the cross objections of the assessee, leading to the dismissal of the Revenue's appeals.

Issue 3: Validity of reopening proceedings without incriminating material
The Tribunal considered the validity of reopening proceedings in the absence of incriminating material in a concluded assessment. Referring to the settled law and the decision in CIT vs. Kabul Chawla, the Tribunal emphasized that assessments under Section 153A must be made based on seized material. As there were no incriminating materials discovered during the search and seizure operations for the relevant assessment years, the Tribunal found the additions unsustainable and allowed the cross objections of the assessee. Consequently, the Revenue's appeals were dismissed.