2022 (1) TMI 75 - AT - Income Tax

Validity of Assessment u/s 153A - whether addition made in the absence of any incriminating material found in the course of search, no addition could be made and proceedings under section 153A be initiated? HELD THAT - As observe from the record that a search and seizure operation under section 132 (1) of the Act was conducted on the assessee and his related entities. Accordingly notice under section 153A of the Act was issued and served on the assessee and in response assessee filed his return of income - addition was made by the assessing officer during this assessment year pertains to a bank account in HSBC, Geneva. The relevant information on the bank account was not found during search proceedings nor found in the possession of the assessee. However, during search proceedings, the assessee was confronted with the Base Note which the Income Tax Department obtained under exchange of information between French government and Indian government under the provisions of DTAA. The investigation wing and the assessing officer heavily relied on the information contained in the Base Note which they have confronted with the expectation that assessee will accept the information contained in the Base Note. However, the assessee has denied the ownership of any bank account opened in the HSBC Bank, Geneva and denied the information on the base note except the personal informations. It is fact on record that the addition was made in the assessment under section 143(3) read with section 153A only based on the information contained in the base note, which was not the material found, during search, in the possession of the assessee or in the places where search were conducted. The addition made by the assessing officer wholly based on the information contained in Base Note which was not the material found during the search proceedings either in possession of the assessee or found in the premises were search conducted. The information obtained from outside agencies which was confronted with the assessee during the search cannot be considered as incriminating material found during search proceedings. It can only be considered as additional information in case it is found proper, can be used to make addition during assessment proceedings and cannot be used as the information found during search. There two aspects are completely different and gives different connotation. The information found during search alone can be considered for making addition u/s 153A of the Act. Therefore, we are inclined to accept the submissions of the Ld. AR and accordingly the ground No. 1 raised by the assessee is allowed. Penalty u/s 271 (1) (c) - Since we already held the assessment made under section 143 (3) read with section 153 A is bad in law in para no. 8.1 above and the assessing officer has not found any incriminating material during search, he cannot make any addition in the proceedings under section 153A of the Act, therefore, penalty cannot be levied in this case. Accordingly, we direct the AO to delete the penalty levied.

Summary

Issues Involved:
1. Validity of proceedings under Section 153A of the Income Tax Act, 1961.
2. Addition based on information in the Base Note.
3. Penalty under Section 271(1)(c) of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Validity of proceedings under Section 153A:
The primary issue raised by the assessee was the validity of proceedings under Section 153A of the Income Tax Act, 1961. The assessee argued that the proceedings and the subsequent addition were bad in law as they were not based on any incriminating material found during the search. The search was conducted under Section 132 of the Act, and the information regarding the foreign bank account in HSBC Bank, Geneva, was obtained from a Base Note received from the French government under the DTAA. The assessee denied ownership of the account during the search and subsequent assessments. The Tribunal referred to the Special Bench decision in All Cargo Logistics Ltd. and the Bombay High Court's decision in Continental Warehousing Corporation, which held that additions in non-abated assessments must be based on incriminating material found during the search. As no such material was found, the Tribunal concluded that the proceedings under Section 153A were invalid, and the assessment made was legally invalid.

2. Addition based on information in the Base Note:
The addition made by the Assessing Officer was solely based on the information contained in the Base Note, which indicated that the assessee had an undisclosed foreign bank account. The Tribunal observed that this information was not found during the search but was obtained from an external source. The Tribunal emphasized that for an addition to be made under Section 153A, it must be based on incriminating material found during the search. Since the Base Note was not such material, the addition could not be sustained. The Tribunal allowed the ground raised by the assessee, holding that the addition based on the Base Note was invalid.

3. Penalty under Section 271(1)(c):
The Assessing Officer had levied a penalty of 300% of the tax sought to be evaded, which was reduced to 100% by the CIT(A). Both the Revenue and the assessee appealed against this decision. The Tribunal, having already held that the assessment under Section 153A was invalid and that no incriminating material was found during the search, concluded that the penalty could not be levied. Consequently, the Tribunal directed the Assessing Officer to delete the penalty.

Conclusion:
The Tribunal allowed the appeal filed by the assessee, holding that the proceedings under Section 153A were invalid and the addition based on the Base Note was unsustainable. The Tribunal also directed the deletion of the penalty under Section 271(1)(c). The appeal filed by the Revenue was dismissed.