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2025 (3) TMI 1222 - AT - Income TaxAssessment u/s 153A - absence of any incriminating material found as a result of search - disallowance of depreciation on machinery - HELD THAT - As in respect of completed-unabated assessment no addition can be made by the AO in absence of any incriminating material found during the course of search u/sec.132 or requisition u/sec.132A. However in the assessment is abated as on the date of search the AO shall assess or re-assess the total income taking into consideration the incriminating material and any other material including books of accounts. In the present case going by the date of search in the case of assessee i.e. on 02.05.2018 the assessment for the assessment year 2017-2018 is abated. Therefore in our considered view the AO can assess the total income on the basis of any other material but not only on the basis of the incriminating material found as a result of search. CIT(A) without considering the relevant facts and further on wrong assumption of facts that the assessment year is unabated as on the date of search by following the decision of Abhisar Buildwell P. Ltd. 2023 (4) TMI 1056 - SUPREME COURT has deleted the additions made by the Assessing Officer. Thus we set aside the order passed by the learned CIT(A) and allow the appeal filed by the Revenue. Disallowance of payment made to two sub-contractors on the basis of survey operation conducted u/sec.133A of the Act and material found during the course of survey operation coupled with the statement recorded from Chief Financial Officer and Managing Director of the assessee company - In case the assessment is abated as on the date of search the AO shall assess or re-assess the total income taking into consideration the incriminating material and any other material. In the present case going by the date of search in the case of assessee i.e. on 02.05.2018 the assessment for the assessment year 2018-2019 is abated. Therefore in our considered view the AO can assess the total income on the basis of any other material but not only on the basis of the incriminating material found as a result of search. CIT(A) without considering the relevant facts and further on wrong assessment of facts that the assessment year is unabated as on the date of search and by following the decision of Abhisar Buildwell P. Ltd. 2023 (4) TMI 1056 - SUPREME COURT has deleted the additions made by the AO. Thus we set aside the order passed by the CIT(A) and allow the appeal filed by the Revenue. Additions only on the basis of third party statement unless corroborative evidences are brought on record to substantiate the contents of statement recorded from third party - Once the third party statement is relied upon by the Assessing Officer he is duty bound to provide the statement to the assessee for his comments and cross-examination. In the present case AO without providing the statement recorded from Shri Kewalchand Jain to the assessee for his comments and cross-examination made the additions. Therefore additions made by the AO on the basis of statement of third party cannot be sustained. Thus we direct the Assessing Officer to delete the additions made towards disallowance of depreciation on plant and machinery. Additions made towards sub-contract payments - Once addition is made on the basis of enquiries conducted by the AO in our considered view the findings of the enquiry should be given to the assessee for his comments and rebuttal. In the present case the AO has made addition only on the basis of enquiry conducted on the sub-contract coupled with statement recorded from the employee of the assessee but the fact remains that nowhere in the statement of the employees is there any adverse inference against payment made to these sub-contracts. Therefore the addition made by the AO on the basis of enquiry conducted on two sub-contractors coupled with the statement recorded from employee of the assessee company cannot be sustained. Thus we direct the AO to delete the additions made towards sub-contract payments made to Rayon Infrastructure Pvt. Ltd. and Sunil Hitech Engineers Ltd.
1. ISSUES PRESENTED and CONSIDERED
The core legal issues considered by the Tribunal were: 1. Whether the CIT(A) erred in deleting the disallowance of depreciation claimed by the assessee for the assessment year 2017-2018 based on the absence of incriminating material found during the search. 2. Whether the assessment for the year 2017-2018 was abated or unabated as on the date of search, and the implications of this status on the additions made by the Assessing Officer. 3. Whether the CIT(A) erred in deleting the disallowance of subcontract payments made by the assessee for the assessment year 2018-2019, based on the absence of incriminating material found during the search. 4. Whether the assessment for the year 2018-2019 was abated or unabated as on the date of search, and the implications of this status on the additions made by the Assessing Officer. 5. Whether the Tribunal should condone the delay in filing cross-objections by the assessee for both assessment years. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Disallowance of Depreciation for A.Y. 2017-2018 - Legal Framework and Precedents: The Tribunal considered Section 153A of the Income Tax Act, which deals with assessments in cases of search or requisition. The decision of the Supreme Court in PCIT vs. Abhisar Buildwell P. Ltd. was pivotal, which held that no additions can be made in respect of unabated assessments without incriminating material found during the search. - Court's Interpretation and Reasoning: The Tribunal found that the CIT(A) misapplied the Supreme Court's decision by considering the assessment as unabated when it was actually abated as on the date of search. - Key Evidence and Findings: The search conducted on 02.05.2018 was within the time limit for issuing notice under Section 143(2), making the assessment abated. - Application of Law to Facts: Since the assessment was abated, the Assessing Officer was justified in making additions based on any material, not limited to incriminating material found during the search. - Conclusions: The Tribunal set aside the CIT(A)'s order and upheld the disallowance of depreciation. Issue 2: Disallowance of Subcontract Payments for A.Y. 2018-2019 - Legal Framework and Precedents: Similar to Issue 1, the Tribunal relied on Section 153A and the precedent set by the Supreme Court in PCIT vs. Abhisar Buildwell P. Ltd. - Court's Interpretation and Reasoning: The Tribunal concluded that the assessment for 2018-2019 was also abated as on the date of search, allowing the Assessing Officer to make additions based on any material. - Key Evidence and Findings: The Tribunal noted that the search was conducted before the expiry of the notice period under Section 143(2), thus abating the assessment. - Application of Law to Facts: The Tribunal found that the CIT(A) erred in deleting the disallowance of subcontract payments as the assessment was abated, allowing for broader consideration of materials. - Conclusions: The Tribunal set aside the CIT(A)'s order and upheld the disallowance of subcontract payments. Issue 3: Condonation of Delay in Filing Cross-Objections - Legal Framework and Precedents: The Tribunal considered the principles of 'sufficient reason' and 'reasonable cause' for condonation of delay. - Court's Interpretation and Reasoning: The Tribunal found the reasons provided by the assessee for the delay to be bona fide and reasonable, falling under 'reasonable cause'. - Key Evidence and Findings: The assessee's belief that relief from the CIT(A) negated the need for cross-objections and subsequent advice from counsel constituted sufficient reason. - Conclusions: The Tribunal condoned the delay and admitted the cross-objections for adjudication. 3. SIGNIFICANT HOLDINGS - The Tribunal held that for abated assessments, the Assessing Officer has the authority to assess or reassess total income based on any material, not limited to incriminating material found during the search. - The Tribunal emphasized the need for proper application of the Supreme Court's decision in PCIT vs. Abhisar Buildwell P. Ltd., particularly in distinguishing between abated and unabated assessments. - The Tribunal underscored the importance of providing third-party statements to the assessee for rebuttal to uphold principles of natural justice. - The Tribunal's decision to condone the delay in filing cross-objections highlighted the importance of reasonable cause and bona fide belief in procedural matters.
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