2022 (10) TMI 662 - HC - Income Tax

Assessment u/s 153A - seized material/documents found during the course of search and seizure operations under Section 132 or not? - HELD THAT - This Court in Principal Commissioner of Income Tax vs. Bhadani Financiers Pvt. Ltd. 2021 (9) TMI 902 - DELHI HIGH COURT has held that where the assessment of the respondents had attained finality prior to the date of search and no incriminating documents or materials had been found and seized at the time of search, no addition could be made under Section 153A of the Act as the cases of the respondents were of non-abated assessment. Both the CIT(A) and the ITAT have given concurrent findings of fact that no incriminating evidence had been brought on record by the Assessing Officer and the time for issuing notice u/s 143(2) had elapsed at the time the search proceedings had been undertaken. - Decided in favour of assessee.

Summary

Issues:
- Challenge to ITAT order on addition under Section 153A of the Income Tax Act, 1961
- Interpretation of legal position post search under Section 132 of the Act
- Application of precedents Commissioner of Income Tax vs. Kabul Chawla and PCIT vs. Meeta Gutgutia
- Impact of absence of incriminating material on assessment under Section 153A
- Judicial findings on non-abated assessments and finality of assessments pre-search
- Concurrent findings of CIT(A) and ITAT on lack of incriminating evidence and expired notice period under Section 143(2)

Issue 1: Challenge to ITAT order on addition under Section 153A of the Income Tax Act, 1961
The appeal challenges the ITAT's decision regarding the addition under Section 153A, contending that the ITAT erred in ruling that no addition can be made if not based on seized material/documents found during search and seizure operations under Section 132 of the Act.

Issue 2: Interpretation of legal position post search under Section 132 of the Act
The judgment references the legal position post a search under Section 132, emphasizing the mandatory issuance of notice under Section 153A(1) for the person searched. It highlights the abatement of pending assessments, the computation of total income for preceding years, and the power of the AO to assess and reassess income based on seized material.

Issue 3: Application of precedents Commissioner of Income Tax vs. Kabul Chawla and PCIT vs. Meeta Gutgutia
The judgment discusses the precedents set by Commissioner of Income Tax vs. Kabul Chawla and PCIT vs. Meeta Gutgutia, emphasizing the necessity of assessments based on incriminating material found during the search. It clarifies that assessments must have a relevance or nexus with the seized material to avoid arbitrary decisions.

Issue 4: Impact of absence of incriminating material on assessment under Section 153A
In cases where no incriminating material is found, the judgment establishes that completed assessments can be reiterated, and abated assessments can be made. It stresses that assessments under Section 153A must be based on seized material, and completed assessments can only be interfered with based on incriminating material unearthed during the search.

Issue 5: Judicial findings on non-abated assessments and finality of assessments pre-search
The judgment cites a case where it was held that if assessments had attained finality before the search and no incriminating material was found, no addition could be made under Section 153A. This emphasizes the importance of differentiating between abated and non-abated assessments in such scenarios.

Issue 6: Concurrent findings of CIT(A) and ITAT on lack of incriminating evidence and expired notice period under Section 143(2)
Both the CIT(A) and ITAT provided concurrent findings that no incriminating evidence was presented by the Assessing Officer, and the notice period under Section 143(2) had lapsed during the search proceedings. This led the Court to conclude that no substantial question of law arose, resulting in the dismissal of the appeal.