2016 (11) TMI 1046 - AT - Income Tax

Assessment u/s 153A - addition to income - whether any incriminating material concerning such additions was found during the course of search? - Held that - Sh. Goyal admitted that certain incriminating documents relating to various investment companies, excess cash and jewellery was found at his residence. Admittedly there is no reference in the statement to any document found, which revealed that the assessee had wrongly claimed interest on loan taken for his house property, which was the only disallowance made in the assessment order passed under section 153A for the impugned year. Moreover, we find that the disallowance was made for want of evidence and not on the basis of any incriminating material found during search. Further we find that the statement is general with no reference to any specific document or asset found during search and the assessee has admittedly surrendered ₹ 11 crores on account of the same and paid taxes thereon. The statement therefore cannot be stated to be incriminating material for the purpose of disallowing interest on housing loan. Thus we hold that in the absence of any incriminating material found during the course of search and the assessment proceedings having not abated at the time of search, the Assessing Officer has no jurisdiction to make the addition under section 153A of the Act. - Decided in favour of assessee

Issues Involved:
1. Whether the addition made to the income of the assessee for the said assessment years was sustainable given that no incriminating material concerning such additions was found during the course of search and no assessments for such years were pending on the date of search.

Detailed Analysis:

1. Background and Common Issue:
These 37 appeals, heard together, revolve around a common issue: "Whether the addition made to the income of the assessee for the said assessment years was not sustainable because no incriminating material concerning such additions was found during the course of search and further no assessments for such years were pending on the date of search." The income had been originally assessed under section 143(3) or accepted under section 143(1) of the Income-tax Act, 1961, and the time for issuing notice under section 143(2) had expired by the date of the search. No incriminating material pertaining to the impugned years was found during the search, and the additions made in the assessment under section 153A did not pertain to any incriminating material found during the search.

2. Admissibility of Additional Grounds:
In cases relating to several companies and individuals, an additional ground was raised for the first time before the Bench, and an application for admitting the same was filed under rule 11 of the Income-tax (Appellate Tribunal) Rules, 1963. The ground was admitted for adjudication based on the decision of the apex court in National Thermal Power Co. Ltd. v. CIT.

3. Lead Case Analysis:
The case of Mala Builders Pvt. Ltd. was taken as the lead case. The assessee's return of income was accepted under section 143(1) as no notice under section 143(2) was issued within the stipulated time. During the search, no incriminating material was found, and the addition made was related to disallowance of interest under section 24(b) due to lack of evidence.

4. Legal Precedents and Arguments:
The assessee's counsel argued that, based on several court decisions, no addition could be made under section 153A in the absence of incriminating material if the assessments were completed on the date of the search. Reliance was placed on decisions from various High Courts, including CIT v. Murli Agro Products Ltd., CIT v. Continental Warehousing Corporation, CIT v. Kabul Chawla, and others. The Department's representative argued that the Assessing Officer was not restricted to using only incriminating material found during the search and cited several case laws and a Central Board of Direct Taxes Circular to support this contention.

5. Tribunal's Findings:
The Tribunal agreed with the assessee's contention that the issue is no longer res integra, as various High Courts have held that completed assessments can be interfered with under section 153A only based on incriminating material found during the search. The Tribunal cited several High Court decisions, including CIT v. Murli Agro Products Ltd., CIT v. Anil Kumar Bhatia, CIT v. Continental Warehousing Corporation, and CIT v. Kabul Chawla, which support this view. The Tribunal also noted that the requirement of the section is limited to opening or reopening cases for assessing the total income of the preceding six assessment years prior to the year of search and does not specifically contain any provision regarding the nature of addition.

6. Rebuttal of Department's Arguments:
The Tribunal rejected the Department's arguments, including the reliance on the Chandigarh Bench decision in Vipan Kumar Verma v. Asst. CIT and the special leave petition granted by the Supreme Court against the High Court's ruling in CIT v. Continental Warehousing Corporation. The Tribunal also dismissed the argument that the statement of Sh. Kishan Kumar Goyal constituted incriminating material, as it did not specifically relate to the disallowance made in the assessment order.

7. Conclusion:
The Tribunal held that in the absence of any incriminating material found during the search and with the assessment proceedings having not abated at the time of the search, the Assessing Officer had no jurisdiction to make any addition under section 153A. Consequently, all additions made in the order under section 153A/143(3) were deleted. The appeals filed by the assessees and cross objections were allowed, and the Department's appeals were dismissed.

8. Final Order:
The appeals filed by the assessees and cross objections were allowed, and all additions were deleted. The Department's appeals were dismissed. The order was pronounced in the open court.

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