2021 (10) TMI 1147 - AT - Income Tax

Assessment u/s 153C - Whether no addition/disallowance can be made in absence of any incriminating material found as a result of search and seizure operation? - HELD THAT - As on the date of search and seizure operation, assessments for the impugned assessment years have not abated. A perusal of the assessment orders would reveal that the various additions/disallowance made by assessing officer, such as, disallowance of depreciation, cash credits, 14A disallowance, etc. are not based on any incriminating material found as a result of search. At least, in the body of the assessment orders the assessing officer has not made any observation to demonstrate that the additions/disallowances made are with reference to incriminating material found as a result of search. On a specific query from the bench, learned departmental representative while accepting that the assessing officer has not referred to any incriminating material for making additions also could not bring to our notice any incriminating material on record which can be even remotely connected to the additions made by the AO. As per the ratio laid down in case of CIT vs Continental Warehousing Corporation and Another 2015 (5) TMI 656 - BOMBAY HIGH COURT in a case where on the date of search and seizure proceedings the assessment has not abated, no addition can be made in absence of any incriminating material - No infirmity in the decision of Commissioner (Appeals) in deleting the additions made by the assessing officer - Decided in favour of assessee.

Summary

Issues:
Appeals concerning assessment years 2008-09, 2011-12, and 2012-13 based on search and seizure operation under section 132(1) of the Income Tax Act, 1961.

Analysis:
The appeals before the Appellate Tribunal ITAT Mumbai involved the same assessee and arose from three separate orders dated 02-02-2018 of the Commissioner of Income Tax (Appeals)-53, Mumbai for the assessment years 2008-09, 2011-12, and 2012-13. The assessee, a resident company engaged in job work of ready-made garments and intermediate chemicals, had filed returns of income for the disputed years under section 139(1) of the Act, which were processed under section 143(1). Subsequently, a search and seizure operation was conducted in the case of another entity, leading to proceedings under section 153C being initiated against the present assessee. Assessments were completed for the disputed years under section 153C r.w.s. 143(3) with various additions and disallowances. The assessee appealed, arguing that no additions could be made in the absence of incriminating material found during the search. The Commissioner (Appeals) accepted this argument and deleted the additions made by the assessing officer.

The Tribunal noted that on the date of the search and seizure operation, there were no pending assessments for the disputed years before the assessing officer, as they had already been processed under section 143(1). The additions and disallowances made by the assessing officer were not based on any incriminating material found during the search. The assessing officer did not demonstrate in the assessment orders that the additions/disallowances were linked to any incriminating material. The Tribunal referred to judicial precedents, including the Hon'ble jurisdictional High Court's decision in CIT vs Continental Warehousing Corporation, which held that in the absence of abated assessments, no additions can be made without incriminating material. The Tribunal upheld the Commissioner (Appeals)'s decision to delete the disputed additions, as it was in line with established legal principles and precedents.

In conclusion, the Tribunal dismissed the appeals, affirming the decision of the Commissioner (Appeals) to delete the additions made by the assessing officer. The Tribunal's decision was based on the absence of incriminating material and the legal precedent that additions cannot be made when assessments have not abated.