2022 (8) TMI 268 - HC - Income Tax

Assessment u/s 153A - Whether no incriminating material was found during the course of search? - HELD THAT - No other material found during search pertaining to M/s KGN Industries Ltd. has been placed on record. Revenue has not placed on record any incriminating material which was found as a result of the search conducted on the assessee herein. It is also the contention of the assessee that there was no surrender by him unlike Sh. Madho Gopal Agarwal and he, therefore, specifically disputed that any notice u/s 153A of the Act could have been initiated against him. The said facts are not disputed by the counsel for the Revenue. On the date of search, admittedly, the assessment with respect to the AY under consideration 2011-12 admittedly stood completed. Since no assessment was pending for the relevant AY 2011-12 on the date of search and no incriminating material was found during the course of search, the issue is covered in favour of the assessee by the judgment of this Court in the case of Commissioner of Income Tax v. Kabul Chawla 2015 (9) TMI 80 - DELHI HIGH COURT and Principal CIT vs. Meeta Gutgutia 2017 (5) TMI 1224 - DELHI HIGH COURT .- Decided in favour of assessee.

Summary

Issues:
1. Interpretation of incriminating material in income tax proceedings.
2. Validity of additions made by the Assessing Officer based on statements recorded during search operations.
3. Applicability of Section 153A of the Income Tax Act, 1961 in relation to completed assessments.

Issue 1: Interpretation of incriminating material in income tax proceedings:
The case involved a dispute regarding undisclosed income routed through bogus entries of Long Term Capital Gains (LTCG) by selling shares. The Revenue contended that incriminating documents found during search operations revealed LTCG earned from penny stock companies was used for personal purposes. The Assessing Officer (AO) rejected the return filed by the assessee, treating the claimed LTCG as unexplained credit under Section 68 of the Act.

Issue 2: Validity of additions based on statements recorded during search operations:
The assessee challenged the AO's order before the Commissioner of Income Tax (CIT(A)), arguing that no incriminating evidence was found during the search proceedings for the relevant assessment year. Despite relying on the statement of the Managing Director and CIT(A) confirming the AO's addition, the Income Tax Appellate Tribunal (ITAT) set aside the addition, stating it lacked incriminating material and relied solely on the Managing Director's disclosures.

Issue 3: Applicability of Section 153A in relation to completed assessments:
The ITAT's decision was contested by the Revenue, arguing that corroborative conduct of family members supported the Managing Director's statement. However, the High Court noted the absence of incriminating material related to the claimed LTCG during the search. Citing precedent, the Court held that since no assessment was pending for the relevant assessment year on the date of search and no incriminating material was found, the addition made by the AO was not sustainable under Section 153A.

In conclusion, the High Court dismissed the appeal, upholding the ITAT's decision to set aside the addition made by the AO. The Court emphasized the importance of incriminating material in income tax proceedings and reiterated the legal principles under Section 153A. The judgment clarified the necessity of seized material for making additions and highlighted the merging of original and Section 153A assessments in absence of incriminating evidence.