2023 (3) TMI 285 - AT - Income Tax

Assessment u/s 153C - incriminating documents or books of accounts belonging to the assessee were found during the course of search action u/s 132 or not? - whether no additions were made by the A.O. on the basis of documents belonging to the assessee? - HELD THAT - We are of the considered view that since the search was conducted prior to amendment in section 153C of the Act, it was an essential pre-requisite that the incriminating documents on the basis of which the assessment was framed must belong to the assessee. From the contents of the assessment order and the observations made by Ld. CIT(Appeals), even the Ld. A.O. has not alleged that additions were made on the basis of incriminating documents belonging to the assessee found during the course of search. Therefore, in the instant set of facts, we find no infirmity in the order of the Ld. CIT(Appeals) wherein he has held that since assessment was not framed on the basis of any incriminating documents belonging to the assessee found during the course of search, then in light of the various judicial precedents, additions are not liable to be sustained. Additions for Unabated assessment year can only be made on the basis of incriminating material found during the course of search - We observe that Ld. CIT(Appeals) while disposing of the objections raised by the in respect of initiation of proceedings under section 153C of the Act, has categorically held that there was no incriminating material which formed the basis of assessment framed under section 153C of the Act. The same is evident from the relevant paragraphs of Ld. CIT(Appeals) order disposing of the objections raised by the assessee in respect of initiation of proceedings under section 153C. In the instant set of facts, no incriminating materials was found during the course of search which formed the basis of initiation of proceedings under section 153C of the Act. We also observe that the instant year is an unabated assessment year where the time limit of completing the assessment proceedings have already been concluded. It is well-settled law that in absence of any incriminating material found during the course of search, proceedings under section 153A/153C of the Act cannot be initiated in case of unabated assessment year. As noted by Ld. CIT(Appeals), is an unabated assessment year. During the search operation which was carried by the Department, admittedly, no incriminating material was discovered, which formed the basis of additions made in respect of order for assessment year 2009-10 passed u/s. 153C of the Act, for which the time limit of initiation of assessment has already concluded. It is a settled position of law that in case of unabated assessment year, no addition could be made de-hors the material found during the search. In our view, CIT(Appeals) has not erred in law and in fact in holding that the initiation of proceedings u/s. 153C of the Act on the assessee are not sustainable in the instant facts. Appeal of the Department is dismissed on ground of jurisdiction itself.

Summary

Issues Involved:
1. Validity of assessment under Section 153C of the Income Tax Act.
2. Deletion of addition of Rs. 2,57,00,000 on account of unexplained credits.
3. Deletion of addition of Rs. 2,00,000 on account of unexplained purchases of shares.
4. Whether the order under Section 144 read with Section 153C should be upheld.
5. Applicability of CBDT Circulars on monetary limits for appeals.

Detailed Analysis:

1. Validity of Assessment under Section 153C:
The primary issue was whether the assessment under Section 153C was valid. The Revenue argued that the Ld. CIT(A) erred in law and on facts by not appreciating the provisions of Section 153C, which require the total income to be brought under tax without restrictions. The Ld. CIT(A) held that such assessment or reassessment under Section 153C should be restricted only to the incriminating material found during the search.

The Tribunal upheld the Ld. CIT(A)'s decision, noting that no documents "belonging to" the assessee were found during the search at the Suraj Group of cases. The additions were based on the bank statements examined during the assessment proceedings, not on any incriminating material found during the search. The Tribunal cited multiple judicial precedents, including the Gujarat High Court's decision in Anil Kumar Gopikishan Agrawal, which clarified that for searches conducted before 01-06-2015, only documents "belonging to" the assessee could trigger proceedings under Section 153C.

2. Deletion of Addition of Rs. 2,57,00,000 on Account of Unexplained Credits:
The AO had added Rs. 2,57,00,000 as unexplained income under Section 68, based on credits in the bank accounts of M/s Kuntal Investment and Shri Mahesh P. Gandhi. The Ld. CIT(A) deleted this addition, stating that the initiation of proceedings under Section 153C was not in accordance with the law, as no incriminating documents "belonging to" the assessee were found.

The Tribunal agreed with the Ld. CIT(A), emphasizing that the assessment for the year was not based on any incriminating material found during the search. Therefore, the addition could not be sustained.

3. Deletion of Addition of Rs. 2,00,000 on Account of Unexplained Purchases of Shares:
The AO had also made an addition of Rs. 2,00,000 for unexplained purchases of shares. The Ld. CIT(A) deleted this addition on similar grounds, noting that the assessment was not based on any incriminating material found during the search.

The Tribunal upheld this decision, reiterating that no incriminating material "belonging to" the assessee was found during the search, and thus, the addition could not be sustained.

4. Whether the Order under Section 144 read with Section 153C Should be Upheld:
The Department contended that the Ld. CIT(A) should have upheld the AO's order under Section 144 read with Section 153C. However, the Tribunal found that the Ld. CIT(A) correctly set aside the assessment order on jurisdictional grounds, as the assessment was not based on any incriminating material found during the search.

5. Applicability of CBDT Circulars on Monetary Limits for Appeals:
The Department argued that the tax effect of Rs. 88,03,410 exceeded the monetary limit specified in CBDT Circulars, and thus, the appeal should be decided on merits. However, the Tribunal dismissed the appeal on jurisdictional grounds, without addressing the monetary limit issue.

Conclusion:
The Tribunal dismissed the Department's appeal, upholding the Ld. CIT(A)'s decision to set aside the assessment order under Section 153C due to the lack of incriminating material found during the search. The additions of Rs. 2,57,00,000 and Rs. 2,00,000 were also deleted on these grounds. The Tribunal confirmed that for searches conducted before 01-06-2015, only documents "belonging to" the assessee could justify proceedings under Section 153C.