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2025 (3) TMI 1382 - AT - Income TaxAssessment u/s 153C - Addition u/s 68 - Addition in the absence of incriminating material found during the search - HELD THAT -We find that in this case addition has been made on account of share application and unsecured loan interest relating to purchase of property. All these items were duly disclosed by the assessee in the balance sheet hence the submission of the assessee is correct as no seized material was found on the basis of which the addition has been made. In this regard we rely upon the decision of the Apex Court in the case of CIT vs. Abhisar Buildwell Pvt. Ltd. 2023 (4) TMI 1056 - SUPREME COURT wherein as expounded that for assessment u/s.153A incriminating material is a sine quo non and in the absence of incriminating material as referred the assessment is bad in law. Decided in favour of assessee.
ISSUES PRESENTED and CONSIDERED
The core legal issues considered in this judgment include: 1. Whether the jurisdictional conditions under Section 153C of the Income Tax Act were met for the assessment year 2011-12, and whether the assessment order was void ab initio due to lack of jurisdiction. 2. Whether the additions made under Section 68 of the Act, concerning unexplained investment in immovable property and disallowance of interest on loans, were justified in the absence of incriminating material found during the search. 3. Whether the assessment order was passed without requisite approval under Section 153D, and if such approval was mechanical and without application of mind. 4. Whether the principles of natural justice were violated due to inadequate opportunity of hearing provided to the assessee. ISSUE-WISE DETAILED ANALYSIS 1. Jurisdiction under Section 153C The legal framework under Section 153C requires that assessments made in connection with search and seizure operations must be based on incriminating material found during such operations. The Court evaluated whether the jurisdictional conditions were satisfied for the assessment year in question. The Court noted that the assessment was completed without reference to any seized material, which is a prerequisite for invoking Section 153C. The Court relied on the precedent set by the Apex Court in CIT vs. Abhisar Buildwell Pvt. Ltd., which mandates that incriminating material is essential for a valid assessment under Section 153A. In the absence of such material, the assessment was deemed bad in law. 2. Additions under Section 68 and Disallowance of Interest The Court analyzed the additions made under Section 68 for unexplained investments and the disallowance of interest on loans. The relevant legal framework requires that such additions be supported by evidence found during the search. The Court found that the additions were made based on items already disclosed in the assessee's balance sheet and not on any seized material. The Court concluded that the absence of incriminating material invalidated the additions, aligning with the principle that assessments must be based on evidence discovered during the search. 3. Approval under Section 153D The issue of requisite approval under Section 153D was considered, focusing on whether the approval was mechanical and lacked application of mind. The Court did not find it necessary to delve deeply into this issue, given its decision on the primary legal ground regarding the absence of incriminating material. 4. Principles of Natural Justice The assessee argued that the assessment order was passed without adequate opportunity for a hearing, violating the principles of natural justice. However, this issue was rendered academic due to the Court's decision on the primary legal ground. SIGNIFICANT HOLDINGS The Court held that the assessment under Section 153C was invalid due to the absence of incriminating material, as required by the legal framework and established precedents. The Court's reasoning was grounded in the principle that such material is a sine qua non for assessments related to search operations. "...for assessment u/s. 153A incriminating material is a sine quo non and in the absence of incriminating material as referred, the assessment is bad in law." The Court concluded that the additions made under Section 68 and the disallowance of interest on loans were unsupported by the necessary evidence, leading to the allowance of the appeal in favor of the assessee.
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