2021 (9) TMI 902 - HC - Income Tax

Assessment u/s 153A - Addition made u/s 68 on account of unexplained credits and u/s 69C on account of unexplained expenses - Whether any incriminating documents/materials had been found and seized during searches? - HELD THAT - No specific ground that any incriminating material had been found during the search. The Tribunal s finding that It is an admitted fact that in the search action under Section 132 of the Act, no incriminating document/material was found and seized at the time of search and also subsequently is correct and suffers from no perversity. Consequently, it is not open to the appellant to contend that incriminating documents/materials had been found and seized during searches. As in Kabul Chawla 2015 (9) TMI 80 - DELHI HIGH COURT has held that if no incriminating material is found during the course of the search in respect of an issue, then no addition in respect of such an issue can be made in the assessment under Sections 153A and 153C. Thus assessment of the respondents had attained finality prior to the date of search and no incriminating documents or materials had been found and seized at the time of search. Consequently, no addition can be made under Section 153A of the Act as the cases of respondents are of non-abated assessments. - Decided in favour of assessee.

Issues Involved:
1. Whether the ITAT erred in confirming the deletion of additions made under Sections 68 and 69C of the Income Tax Act.
2. Whether the ITAT erred in relying on the decision of CIT vs Kabul Chawla without considering the merits of the case.
3. Whether the ITAT erred in deleting additions made under Section 153A without considering that the decision in CIT vs Kabul Chawla was not accepted by the Department.
4. Whether the ITAT was justified in not appreciating that the issue in CIT vs Kabul Chawla is pending before the Supreme Court.
5. Whether the ITAT erred in restricting the applicability of Section 153A to only undisclosed income and assets detected during the search.
6. Whether the ITAT failed to consider the mandatory provision of assessing the total income of six assessment years under Section 153A.

Issue-wise Detailed Analysis:

1. ITAT's Confirmation of Deletion of Additions under Sections 68 and 69C:
The appellant argued that the ITAT erred in confirming the deletion of additions made under Section 68 (unexplained credits) and Section 69C (unexplained expenses). The court noted that both the CIT(A) and ITAT had concurred that no incriminating materials were seized during the searches. The CIT(A) had detailed that the appellant had provided all necessary documents to substantiate the identity, creditworthiness, and genuineness of the transactions, and no discrepancies were found by the AO. Consequently, the court found no perversity in ITAT's decision.

2. ITAT's Reliance on CIT vs Kabul Chawla:
The appellant contended that the ITAT relied solely on the decision in CIT vs Kabul Chawla without considering the merits of the case. The court observed that the legal position established in Kabul Chawla was clear: no additions could be made under Sections 153A and 153C if no incriminating material was found during the search. The court found that ITAT's reliance on this precedent was appropriate and justified.

3. Deletion of Additions Despite Non-Acceptance of Kabul Chawla by the Department:
The appellant highlighted that the decision in CIT vs Kabul Chawla was not accepted by the Department, and the SLP was dismissed due to low tax effect, not on merit. The court reiterated that the assessment of the respondents had attained finality before the date of the search, and no incriminating materials were found. Thus, the ITAT's decision to delete the additions was consistent with the legal principles established in Kabul Chawla.

4. Pending SLPs Against Kabul Chawla Decision:
The appellant argued that the ITAT should have considered that SLPs against the decision in Kabul Chawla were pending before the Supreme Court. The court noted that there was no stay on the judgment in Kabul Chawla, and therefore, it remained binding. The court found no reason to deviate from the established legal position due to pending SLPs.

5. Restriction of Section 153A to Undisclosed Income and Assets:
The appellant contended that the ITAT erred in restricting the applicability of Section 153A to only undisclosed income and assets detected during the search. The court referred to the concurrent findings of CIT(A) and ITAT that no incriminating materials were seized. The court upheld that the legal position in Kabul Chawla applied, where completed assessments could only be interfered with based on incriminating material found during the search.

6. Mandatory Provision of Assessing Total Income under Section 153A:
The appellant argued that the ITAT failed to consider the mandatory provision of assessing the total income of six assessment years under Section 153A. The court clarified that Section 153A's mandate is to assess the total income based on incriminating material found during the search. Since no such material was found, the court held that the ITAT's decision was correct.

Conclusion:
The court concluded that the questions of law raised in the appeals had been settled by the earlier Division Bench in Kabul Chawla. The assessment of the respondents had attained finality before the search, and no incriminating documents or materials were found. Consequently, no addition could be made under Section 153A. The appeals and applications were dismissed for lack of merit.

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