2022 (1) TMI 1155 - AT - Income Tax

Validity of proceedings u/s 153A - Whether no incriminating material was found as a result of search conducted on the appellant? - As per CIT no incriminating material was found as a result of search conducted on the appellant - HELD THAT - It is an admitted fact that no incriminating material was found from the search which could form the basis of the addition as made in the assessment order. AO had made routine disallowance of expenses based on information already disclosed along with the return of income. It is now well-settled law that in the case of unabated assessment, where the assessments have become final before the date of search, no addition can be made without any incriminating material or documents found during the course of search. This has been held so by the Hon ble jurisdictional High Court in the case of CIT Vs. Kabul Chawla 2015 (9) TMI 80 - DELHI HIGH COURT and Pr. CIT Vs. Meeta Gutgutia 2017 (5) TMI 1224 - DELHI HIGH COURT This fact has also not been challenged by the ld. CIT (Appeals) and that the addition cannot be based on the material found during the course of search. Accordingly, the additions made by the Assessing Officer are beyond the scope of assessment proceedings under Section 153A - Decided in favour of assessee.

Issues:
1. Validity of proceedings u/s 153A of the Income Tax Act and framing of assessment without incriminating material.
2. Disallowance of deduction for interest paid on loans raised for business purposes.
3. Addition on account of low household withdrawals.

Analysis:

Issue 1:
The appeals were filed against the order passed by the Commissioner of Income Tax (Appeals) for assessment years 2004-05, 2005-06, 2006-07, and 2008-09 under Section 153A / 143(3) of the Income Tax Act. The primary contention was the initiation of proceedings u/s 153A and framing of assessment without any incriminating material. The Assessing Officer made various additions without any material found during the search. The appellant argued that additions can only be made based on incriminating material. However, the CIT (Appeals) held that there is no such requirement and that the assessment under 153A can be done even without evidence related to undisclosed income found during the search. The ITAT Delhi, after considering the facts, held that in cases of unabated assessments where the assessments have been finalized before the search, no additions can be made without incriminating material found during the search. The judgments in CIT Vs. Kabul Chawla and Pr. CIT Vs. Meeta Gutgutia were relied upon to support this position.

Issue 2:
Regarding the disallowance of deduction for interest paid on loans raised for business purposes, the appellant contested the disallowance of ?1,08,000 out of ?6,89,008 under Section 36(1)(iii) of the Act. The CIT (Appeals) upheld the disallowance, which the appellant argued was based on incorrect findings and contrary to the evidence on record. However, the ITAT Delhi found that the disallowance was not justified as it was made without proper appreciation of the appellant's case, statutory provisions, and evidence submitted.

Issue 3:
The addition on account of low household withdrawals was also challenged by the appellant. The Assessing Officer made an addition of ?2,00,000 out of ?2,50,000 on this ground. The CIT (Appeals) confirmed this addition, but the appellant argued that it was erroneous and not supported by the facts and circumstances of the case. The ITAT Delhi found that since no incriminating material was found during the search, such additions were beyond the scope of assessment proceedings under Section 153A of the Act.

In conclusion, the ITAT Delhi allowed all the appeals filed by the assessee, emphasizing the importance of incriminating material for making additions in cases of unabated assessments finalized before the search. The judgments in similar cases were instrumental in supporting the decision to set aside the additions made without such material.

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