2023 (8) TMI 1542 - HC - Income Tax

Assessment u/s 153A - incriminating material found during the course of search u/s 132(1) found or not? - HELD HAT - This Court in the case of CIT Vs. Saumya Construction Pvt. Ltd. 2016 (7) TMI 911 - GUJARAT HIGH COURT wherein it is observed that in absence of incriminating material, no addition can be made in the Assessment Order. It has also observed that no disallowance of exemption of Long Term Capital Gain could be made as the same was part of books of accounts and return of income. It has also been observed by the CIT(A) that no addition could be made on the basis of the statement of third party and without having incriminating documents found during the course of search at the place of assessee. Tribunal has observed that there was no assessment pending and no abatement of the assessment originally completed for the year under consideration. There is a concurrent findings of fact regarding non discriminating material/documents found during the course of search place of the assessee. So far as the present case on hand is concerned, this Court would consider the decisions of Abhisar Buildwell (P) Ltd. 2023 (4) TMI 1056 - SUPREME COURT and in the case of Principal Commissioner of Income Tax, Vadodara-3 Vs. Narmada Chematur Petrochemicals Ltd 021 (12) TMI 1081 - GUJARAT HIGH COURT

Summary

Issues Involved:

1. Whether the Income Tax Appellate Tribunal (ITAT) erred in dismissing the Revenue's appeal, holding that additions during assessment under Section 153A must be based on incriminating material found during a search.
2. Whether the ITAT failed to appreciate that Section 153A requires reassessment of total income for six assessment years, even without incriminating material.
3. Whether the ITAT erred in affirming the CIT(A)'s decision that no disallowance of Long Term Capital Gain (LTCG) exemption could be made without incriminating material.
4. Whether the ITAT erred in deleting the addition of Rs.22,89,898/- for alleged bogus LTCG claims without appreciating the department's possession of information regarding accommodation entries.

Detailed Analysis:

Issue 1: Incriminating Material and Section 153A

The appellant argued that the ITAT erred by limiting additions during assessment under Section 153A to incriminating material found during a search, contrary to the absence of such stipulation in the section. The court examined the ITAT's decision, which was consistent with the precedent set by various high courts, including the Gujarat High Court in CIT Vs. Saumya Construction Pvt. Ltd., which held that no additions can be made in completed/unabated assessments without incriminating material. The court affirmed that the ITAT correctly applied this principle, noting that the absence of pending assessments or abatement meant no additions could be made without incriminating evidence.

Issue 2: Reassessment of Total Income

The appellant contended that Section 153A mandates reassessment of total income for six assessment years, regardless of incriminating material. The court reiterated that the legal position, as clarified in the case of Kabul Chawla by the Delhi High Court, is that completed assessments can only be interfered with based on incriminating material found during a search. The court found that the ITAT correctly interpreted Section 153A in line with established judicial interpretations, emphasizing that the absence of incriminating material precludes additional assessments.

Issue 3: Disallowance of LTCG Exemption

The appellant challenged the ITAT's affirmation of the CIT(A)'s decision, which granted LTCG exemption under Section 10(38) due to the lack of incriminating material. The court noted that the ITAT and CIT(A) relied on the principle that no disallowance can be made without incriminating evidence, as established in Saumya Construction and other cases. The court upheld the ITAT's decision, emphasizing that the exemption was part of the books of accounts and no incriminating material was found during the search.

Issue 4: Alleged Bogus LTCG and Accommodation Entries

The appellant argued that the ITAT erred in deleting the addition of Rs.22,89,898/- for alleged bogus LTCG claims, despite possessing information about accommodation entries. The court observed that the ITAT's decision was based on the absence of incriminating material found during the search at the assessee's premises. The court highlighted that the ITAT's findings were consistent with the legal position that additions require a nexus with seized material, and mere possession of information without incriminating evidence does not justify additions.

Conclusion:

The court concluded that the ITAT's decision was based on clear factual aspects and consistent with established legal principles regarding Section 153A. The appeal was dismissed at the admission stage, with no substantial question of law involved. The court emphasized that findings of fact by the ITAT cannot be disturbed in the absence of a substantial question of law, as per the Supreme Court's guidance on appeals under Section 260A.