2025 (1) TMI 563 - AT - Income Tax

Assessment u/s 153A - incriminating material found during a search or not? - HELD THAT - Additions in these cases are not based on any seized material found during the course of search, which is crystal clear from the elaborate findings of the ld. CIT(A). These are completed assessments and it is settled law that in completed assessment, no addition can be made u/s. 153A dehors any material found during search. In this view of the matter, when the Revenue in the ground itself admitted that addition has been made dehors incriminating material found during search and on perusal of the AO s order it reveals no reference has been found that any material found during search on the basis of which he made the addition. The elaborate findings of the Ld. CIT(A) that incriminating material found during search has not been controverted by the Revenue. CIT(A) has passed a well reasoned orders, by relying upon the relevant case laws, hence, we do find any infirmity in his orders. Our aforesaid view is fully supported by the decision of the Hon ble Supreme Court in the case of PCIT vs. Abhisar Buildwell Pvt. Ltd 2023 (4) TMI 1056 - SUPREME COURT wherein the Hon ble Supreme Court has expounded that no addition can be made when the assessment framed u/s. 153A dehors incriminating material found during the search. Decided in favour of assessee.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment include:

Whether the assessment order is valid for an unabated assessment year when not based on any incriminating material found during a search.
Whether documents found during a survey (and not a search) can be used to frame an assessment under Section 153A for an unabated assessment year.
Whether an assessment made solely on the basis of a DVO's valuation report is valid under Section 153A for an unabated assessment year.
Whether the valuation suffers from inconsistencies and is unsustainable on merit.
Whether the addition based on documents seized during the search on a third party is incriminating material in the hands of the appellant.

2. ISSUE-WISE DETAILED ANALYSIS

(A) Validity of Assessment Order for Unabated Year Without Incriminating Material

Legal Framework and Precedents: The legal framework involves Section 153A of the Income Tax Act, which mandates that assessments for unabated years can only be based on incriminating material found during a search. The case of CIT vs. Kabul Chawla is pivotal, establishing that additions should be based on evidence found during a search.
Court's Interpretation and Reasoning: The court emphasized that the assessment order was not based on any incriminating material found during the search. The document in question was found during a survey, not a search, and was owned by a third party.
Key Evidence and Findings: The document did not relate to the appellant's property and lacked transactional details or dates. It was extracted from a third party's hard disk.
Application of Law to Facts: The court applied the principles from Kabul Chawla, concluding that the assessment order was invalid as it was not based on incriminating material found during the search.
Treatment of Competing Arguments: The court rejected the Revenue's argument that the document could be treated as incriminating, as it was not found during a search.
Conclusions: The assessment order was deemed invalid for the unabated year due to the lack of incriminating material found during the search.

(B) Validity of Assessment Based on DVO's Valuation Report

Legal Framework and Precedents: Section 153A requires assessments to be based on incriminating material found during a search, not merely on a DVO's report.
Court's Interpretation and Reasoning: The court held that additions based solely on a DVO's report cannot be sustained for an unabated assessment year without incriminating material.
Key Evidence and Findings: The DVO's report was not supported by any incriminating material found during the search.
Application of Law to Facts: The court found that the foundational jurisdictional requirement for making assessments under Section 153A was missing.
Treatment of Competing Arguments: The court dismissed the argument that the DVO's report alone could justify the assessment.
Conclusions: The assessment based on the DVO's report was invalid for the unabated year.

(C) Incriminating Nature of Documents Seized from Third Party

Legal Framework and Precedents: The court referenced the principle that documents seized from third parties cannot be used as incriminating evidence against the appellant.
Court's Interpretation and Reasoning: The court determined that the document seized from a third party did not pertain to the appellant's transactions and was not incriminating.
Key Evidence and Findings: The document was unrelated to the appellant's property transactions and was owned by another party.
Application of Law to Facts: The court concluded that the document could not be used to make additions in the appellant's assessment.
Treatment of Competing Arguments: The court rejected the Revenue's claims that the document was incriminating.
Conclusions: The document was not considered incriminating material for the appellant's assessment.

3. SIGNIFICANT HOLDINGS

Crucial Legal Reasoning: "Additions in an assessment under Section 153A can be made only on the basis of incriminating material found during the course of search."
Core Principles Established: Assessments for unabated years must be based on incriminating material found during a search. Documents found during a survey or from third parties cannot be used as incriminating evidence.
Final Determinations on Each Issue: The court invalidated the assessment orders for the unabated years due to the lack of incriminating material found during the search. Additions based on the DVO's report and documents seized from third parties were deemed unsustainable.

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