2022 (5) TMI 1156 - AT - Income Tax

Validity of the assessment order passed u/s 153A - incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search or not? - HELD THAT - Assessment for AY 2006-07 was already completed prior to the date of search and having not abated, the scope of proceedings u/s.153A of the Act had to be confined only to material found in the course of search. Since no material on the basis of which the impugned addition has been made was found in the course of search, the additions made by the AO in the order of assessment could not have been subject matter of proceedings u/s 153A of the Act. Consequently, the said additions made in the order of Assessment could not be made by the AO. We thus allow ground No.1 2 and hold the assessment order to be bad in law and accordingly quashed.

Summary

Issues:
- Validity of assessment order passed under section 153A of the Income Tax Act, 1961
- Additions on merit challenged by the assessee

Validity of Assessment Order:
The judgment concerns two appeals filed by the assessee against the order of the Commissioner of Income Tax (Appeals) for Assessment Year 2006-07. The key issue revolves around the validity of the assessment order passed under section 153A of the Income Tax Act. The assessee argued that no incriminating documents were found during the search conducted, and therefore, the Assessing Officer lacked jurisdiction to make additions without such material. The assessee contended that the assessment for the relevant year had already been completed, and as no incriminating material was found, the AO had no authority to assess income not based on search material. The argument relied on the decision in the case of Kabul Chawla and emphasized the requirement of incriminating material for assessments under section 153A.

The Tribunal analyzed the provisions of section 153A and noted that completed assessments could only be interfered with based on incriminating material found during the search. Since no such material formed the basis of the additions made by the AO, the Tribunal held that the assessment order was bad in law and subsequently quashed it. The Tribunal's decision was influenced by the principle that assessments under section 153A must be limited to material found during the search, and as no such material existed in this case, the additions made by the AO were deemed invalid. Consequently, the Tribunal allowed the grounds challenging the validity of the assessment order.

Additions on Merit:
The judgment also addressed the additions made by the Assessing Officer concerning share capital and share premium. The Tribunal observed that there was no mention of incriminating material forming the basis of these additions in the assessment order. Relying on the decision in the case of Kabul Chawla, the Tribunal emphasized that assessments under section 153A must be supported by incriminating material discovered during the search. Since no such material was found in this case, the Tribunal concluded that the additions made by the AO were not valid. As a result, the Tribunal allowed the appeals of the assessee, quashed the assessment order, and held that the additions made were not sustainable under the law.

In conclusion, the Tribunal's judgment focused on the jurisdiction of the Assessing Officer under section 153A of the Income Tax Act and the requirement of incriminating material for making additions in assessments following a search. The decision highlighted the importance of adhering to legal provisions and precedents in conducting assessments, ultimately leading to the allowance of the assessee's appeals and the quashing of the assessment order.