2025 (4) TMI 275 - AT - Income Tax

Validity of assumption of jurisdiction u/s 153A by AO -incriminating material found as a result of search - additions made u/s 69 for unexplained investment and the denial of deductions under Section 80IC/80IE - HELD THAT - CIT(A) has not accepted the case of the assessee in regard to these grounds by relying the decision of Raj Kumar Arora 2014 (10) TMI 255 - ALLAHABAD HIGH COURT . However the law now stands settled in favour of the assessee by the judgement of Abhisar Buildwell (P.) Ltd. 2023 (4) TMI 1056 - SUPREME COURT . Thus the findings of the CIT(A) on the question of law are not sustainable. Very apparently from the assessment order it can be made out that it was only on the basis of the return filed by the assessee the issue of deduction u/s 80IC of the Act was examined and denied and addition u/s 69 of the Act is only on basis of assumptions and conjecture. No specific material found during the search is relied. Thus with regard to the additions though deleted on merits by the CIT(A) we are satisfied that the addition by way of deduction u/s 80IC of the Act could not have been made in the absence of incriminating material and thus we sustain the aforesaid grounds. Appeal of the Revenue is dismissed.

ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

1. Whether the assumption of jurisdiction under Section 153A of the Income Tax Act, 1961, by the Assessing Officer (AO) was in accordance with the law, particularly in the absence of incriminating material found during the search.

2. Whether the additions made by the AO under Section 69 for unexplained investment and the denial of deductions under Section 80IC/80IE were justified in the absence of incriminating material discovered during the search operation.

ISSUE-WISE DETAILED ANALYSIS

Issue 1: Assumption of Jurisdiction under Section 153A

Relevant legal framework and precedents: Section 153A of the Income Tax Act, 1961, empowers the AO to assess or reassess the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which a search is conducted. The legal question revolves around whether the AO can assume jurisdiction under Section 153A without any incriminating material found during the search.

Court's interpretation and reasoning: The Tribunal considered the legal framework and the precedents set by higher courts, particularly the judgment of the Hon'ble Supreme Court in Pr. CIT v. Abhisar Buildwell (P.) Ltd., which clarified that additions under Section 153A cannot be made in the absence of incriminating material found during the search.

Key evidence and findings: The Tribunal noted that the AO's assessment was based solely on the return filed by the assessee and not on any incriminating material found during the search. This was a crucial factor in determining the validity of the jurisdiction assumed by the AO.

Application of law to facts: The Tribunal applied the principles established in the Supreme Court judgment to the facts of the case, concluding that the AO's assumption of jurisdiction under Section 153A was not justified in the absence of incriminating material.

Treatment of competing arguments: The Tribunal considered the arguments presented by both the assessee and the Revenue. It found the assessee's reliance on the Supreme Court's judgment more compelling, given the lack of incriminating evidence.

Conclusions: The Tribunal concluded that the assumption of jurisdiction under Section 153A by the AO was invalid, as it was not based on any incriminating material found during the search.

Issue 2: Additions under Section 69 and Denial of Deductions under Section 80IC/80IE

Relevant legal framework and precedents: Section 69 of the Income Tax Act deals with unexplained investments, allowing the AO to add such investments to the total income if the assessee fails to explain the source. Section 80IC/80IE provides for deductions on certain incomes, subject to conditions.

Court's interpretation and reasoning: The Tribunal examined whether the AO's additions and denial of deductions were justified without incriminating material. It relied on the Supreme Court's judgment, which emphasized the necessity of incriminating material for additions under Section 153A.

Key evidence and findings: The Tribunal found that the additions under Section 69 and the denial of deductions under Section 80IC/80IE were based on assumptions and conjectures, rather than specific incriminating material found during the search.

Application of law to facts: The Tribunal applied the legal principles to the facts, determining that the AO's actions were not sustainable due to the absence of incriminating material.

Treatment of competing arguments: The Tribunal considered the Revenue's reliance on the Allahabad High Court decision in CIT vs. Raj Kumar Arora but found it less persuasive compared to the Supreme Court's judgment favoring the assessee.

Conclusions: The Tribunal concluded that the additions under Section 69 and the denial of deductions under Section 80IC/80IE were not justified, leading to the quashing of the impugned assessment.

SIGNIFICANT HOLDINGS

The Tribunal held that the assumption of jurisdiction under Section 153A was invalid in the absence of incriminating material, as per the Supreme Court's judgment in Pr. CIT v. Abhisar Buildwell (P.) Ltd. The Tribunal emphasized the core principle that additions under Section 153A must be based on incriminating material found during the search.

The Tribunal also determined that the AO's additions under Section 69 and the denial of deductions under Section 80IC/80IE were unsustainable due to the lack of incriminating evidence. The Tribunal's decision resulted in the quashing of the impugned assessment and the dismissal of the Revenue's appeal.

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