2024 (10) TMI 83 - AT - Income Tax

Assessment order passed u/s. 153A - incriminating material found during search or not? - addition as declared by the assessee as agriculture income in the return of income, u/s. 68 on the ground that no evidence of agriculture activity was provided by the assessee - HELD THAT - The Hon ble Supreme Court in the case of PCIT vs. Abhisar Buildwel (P.) Ltd. 2023 (4) TMI 1056 - SUPREME COURT has clearly held that no addition can be made in a completed assessment u/s. 153A of the Act unless an incriminating material is found during the search. In the present case, the A.O has not pointed to any such material with respect to the agriculture income or the capital gains. The addition as unexplained agriculture income u/s. 68 of the Act was merely on the basis of lack of evidence and no incriminating material was brought on record to support this addition. A.O had accepted assessee s agriculture income in the assessment for other years u/s. 153A of the Act. Similarly, with regard to the disallowance of deduction u/s. 54B of the Act on sale of agriculture land, the A.O has not relied on any incriminating material to show that land sold was not agriculture land. The assessee had already disclosed the capital gain in the return of income and the disallowance is based on only on the lack of further documentary evidence which does not meet the threshold required u/s. 153A of the Act for a completed assessment. Addition made by the A.O were not justified. Decided in favour of assessee.

Summary

Issues:
Challenge to addition made in assessment order under section 153A of the Income Tax Act, 1961 for Assessment Year 2014-15 without incriminating material found during search.

Detailed Analysis:

1. Issue of Addition Without Incriminating Material:
The appeal challenged the addition made by the Assessing Officer (A.O) in the assessment order passed under section 153A of the Income Tax Act, 1961 without any incriminating material found during the search. The appellant contended that additions can only be made based on incriminating material found during search under section 132 of the Act. The appellant argued that the assessment for the year in question was already deemed to be completed, and no fresh addition could be made without any incriminating material. The Appellate Tribunal noted the settled law that additions in completed assessments under section 153A require incriminating material. The Tribunal found that the A.O had not provided any incriminating material to support the additions of unexplained agricultural income and capital gains. Relying on the Supreme Court's decision, the Tribunal held that the additions made by the A.O were not justified, and directed the A.O to delete the additions.

2. Disputed Additions:
The A.O had made additions of Rs. 8,75,000 as unexplained agricultural income, Long Term Capital Gain (LTCG) of Rs. 80,40,785, and Short Term Capital Gain (STCG) of Rs. 36,80,000 on the sale of agriculture lands. The A.O disallowed the exemption claimed under section 54B of the Act for the capital gains, stating lack of evidence to prove the lands were agricultural. The CIT(A) upheld these additions, referring to statements during a search operation indicating inflated agricultural income and routing unaccounted income. The appellant argued that the additions lacked incriminating material and were part of completed assessments, as disclosed in previous years without challenge. The Departmental Representative relied on the CIT(A)'s order, citing bank statements as evidence. The Tribunal found no incriminating material to support the additions and ruled in favor of the appellant, directing the deletion of the disputed additions.

3. Legal Precedent and Conclusion:
The Tribunal referred to the Supreme Court's decision in PCIT vs. Abhisar Buildwel (P.) Ltd., emphasizing the requirement of incriminating material for additions in completed assessments under section 153A. As no such material was presented by the A.O, the Tribunal concluded that the additions made were not justified. Therefore, the Tribunal allowed the appellant's appeal and directed the A.O to delete the additions of unexplained agricultural income and capital gains. The decision highlighted the importance of incriminating material in assessments under section 153A and upheld the principle that additions must be supported by such material to be valid.