2023 (8) TMI 1541 - HC - Income Tax

Assessment u/s 153A/143(3) - addition made u/s 14A r.w.r. 8D(2) - whether no incriminating documents/materials were found or seized during the search? - ITAT deleted addition - HELD THAT - After taking note of the submissions on either side the Tribunal on facts has recorded that there is no reference at all by the AO to any incriminating material found during the search and the various additions were undisputably made on the basis of the observations of the AO during the assessment proceedings for which there were no incriminating materials found during the search. Tribunal held that it is the settled legal position that in order to make addition in an unabated assessment on the date of search, there has to be incriminating material found during the search. Tribunal rightly decided the issue in favour of the assessee.

Summary

Issues:
1. Whether the Tribunal was justified in deleting the addition made under Section 14A read with Rule 8D(2) of the Income Tax Act by holding that no addition can be made under Section 153A/143(3) since no incriminating documents/materials were found during the search?

Detailed Analysis:
The High Court of Calcutta heard an appeal filed by the revenue under Section 260(A) of the Income Tax Act, 1961 against the order of the Income Tax Appellate Tribunal for the assessment year 2010-11. The main issue revolved around the deletion of an addition made under Section 14A read with Rule 8D(2) due to the absence of incriminating materials found during the search. The Hon'ble Supreme Court's decision in Principal Commissioner of Income Tax vs. Abhisar Buildwell [P] Ltd. was cited, which established the legal position regarding assessments under Section 153A in cases of search or requisition. The Court referred to the Supreme Court's agreement with the views of the Delhi High Court and High Court of Gujarat on the matter.

The Court summarized the legal position established by the Supreme Court, stating that in cases of search or requisition, the Assessing Officer (AO) assumes jurisdiction for block assessment under Section 153A. It was clarified that if no incriminating material is found during the search, the AO cannot make additions in completed or unabated assessments. However, the AO retains the power to reopen completed or unabated assessments under Sections 147/148 of the Act if the conditions are met. The Court dismissed the appeals and review petition by the Revenue based on the above legal principles.

The assessee had contended before the Tribunal that the CIT(A) erred in not adjudicating the validity of the order under Section 153A when no incriminating material was found during the search. The Tribunal found that the additions were made without any incriminating material and ruled in favor of the assessee, noting that additions in unabated assessments require incriminating material from the search. Consequently, the Court upheld the Tribunal's decision, dismissing the appeal and answering the substantial question of law against the revenue.

In conclusion, the Court affirmed the Tribunal's decision, emphasizing the necessity of incriminating material for additions in unabated assessments and upholding the principles established by the Hon'ble Supreme Court regarding assessments under Section 153A in cases of search or requisition.