2022 (10) TMI 853 - HC - Income Tax

Assessment u/s 153A - Incriminating documents or materials found and seized at the time of search or not? - ITAT held that the addition which was not based on incriminating material found during the search could not be made in assessment under Section 153A - 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. Though, the issue involved in Kabul Chawla 2015 (9) TMI 80 - DELHI HIGH COURT has been challenged and is pending adjudication before the Supreme Court, yet there is no stay of the said judgment till date. Consequently, in view of the judgments passed by the Supreme Court in Kunhayammed and Others vs. State of Kerala and Another 2000 (7) TMI 67 - SUPREME COURT and Shree Chamundi Mopeds Ltd. Vs. Church of South India Trust Association CSI Cinod Secretariat, Madras 1992 (4) TMI 183 - SUPREME COURT the present appeal is covered by the judgment passed by this Court in Bhadani Financiers Pvt. Ltd. (supra) and Kabul Chawla (supra). No substantial question of law

Summary

Issues:
Challenge to ITAT's order under Section 153A of the Income Tax Act, 1961 for Assessment Year 2010-11.

Analysis:
The High Court analyzed the appeal challenging the ITAT's order regarding the addition made without incriminating material during a search under Section 153A of the Income Tax Act, 1961. The Appellant contended that the ITAT erred in deleting the addition without considering the merits. The Court observed that both the CIT(A) and the ITAT found no incriminating material during the search, leading to the deletion of the addition. The Court referred to the judgment in CIT vs. Kabul Chawla, emphasizing the distinction between abated and non-abated assessments and the necessity of incriminating material for additions under Section 153A.

The Court highlighted the legal position emerging from the judgment in PCIT vs. Meeta Gutgutia, emphasizing the mandatory issuance of notices under Section 153A(1) post-search, abatement of pending assessments, and the power of AO to assess the total income for the preceding years. The judgment clarified that assessments under Section 153A must be based on seized material but not arbitrary. It differentiated between assess and reassess in relation to abated and completed assessments.

Referring to the case of Principal Commissioner of Income Tax vs. Bhadani Financiers Pvt. Ltd., the Court reiterated that in non-abated assessments with no incriminating material found during the search, no additions can be made under Section 153A. Despite the challenge to the Kabul Chawla judgment pending before the Supreme Court, the Court noted the absence of a stay on the judgment. Relying on previous legal precedents, the Court concluded that no substantial question of law arose in the present appeal, leading to the dismissal of the appeal.

In conclusion, the High Court upheld the principles established in previous judgments regarding the necessity of incriminating material for additions under Section 153A, emphasizing the distinction between abated and non-abated assessments. The Court's decision was guided by legal precedents and the specific facts of the case, ultimately dismissing the appeal based on the existing legal framework.