2018 (2) TMI 1363 - AT - Income Tax

Scope of assessment u/s 153A - addition on material gathered during the search - Held that - We reiterate that if the Income Tax Department had any material information in its possession received from any external source and in wake of such an information search u/s 132 has been carried out and nothing incriminating has been found having live-link nexus with the said information already in hand, then the Revenue has other courses open to implicate the assessee or carry out further inquiry under the other provisions of the Act, but definitely not u/s.153A. Thus, we hold that despite there being incriminating material in the possession of the Revenue which may implicate assessee, but same cannot be used within the scope of Section 153A when nothing has been found from the search, especially when assessee too has denied any such involvement and there is no material gathered during the search to rebut such a denial by the assessee. Accordingly, the addition made by the Assessing Officer for sum is deleted. - Decided in favour of assessee.

Issues Involved:
1. Validity of the assessment orders.
2. Validity of the notice issued under Section 143(2).
3. Limitation period for passing the assessment order.
4. Principles of natural justice in extending the limitation period.
5. Incriminating material found during the search.
6. Use of unauthorized and unverified material from a third country.
7. Addition under Section 69 for unexplained investment.
8. Validity of the assessment based on a wrong Permanent Account Number.
9. Compliance with notice issued under Section 142(1).

Issue-wise Detailed Analysis:

1. Validity of the assessment orders:
The assessee argued that the assessment orders were bad in law and on facts, disregarding codified law and jurisdictional court rulings. The Tribunal noted that no incriminating material was found during the search, and the assessment for the year in question had attained finality, thus the additions made were beyond the scope of Section 153A.

2. Validity of the notice issued under Section 143(2):
The assessee contended that the notice under Section 143(2) was issued after the statutory deadline. The Tribunal did not specifically address this issue in the final judgment as the primary legal issue regarding the scope of Section 153A was sufficient to quash the additions.

3. Limitation period for passing the assessment order:
The assessee claimed that the assessment order was barred by limitation. The Tribunal observed that the proposal for reference to seek information from foreign jurisdictions was made after the expiry of the time to pass the assessment order, supporting the assessee's contention.

4. Principles of natural justice in extending the limitation period:
The assessee argued that the extension of the limitation period was done without informing them, violating the principles of natural justice. The Tribunal did not find it necessary to delve into this issue due to the primary finding on the scope of Section 153A.

5. Incriminating material found during the search:
The Tribunal emphasized that no incriminating material was found during the search. The information regarding foreign bank accounts was received prior to the search and could not be considered as incriminating material found during the search. The Tribunal relied on the judgment of the Hon'ble Delhi High Court in the case of CIT vs. Kabul Chawala and other related cases, which held that in the absence of incriminating material, no addition can be made in the assessment under Section 153A.

6. Use of unauthorized and unverified material from a third country:
The Tribunal noted that the information received from the French authorities was prior to the search and could not be used as a basis for additions under Section 153A. The Tribunal held that such information, even if incriminating, cannot be used if it was not found during the search.

7. Addition under Section 69 for unexplained investment:
The Tribunal deleted the addition of ?27,91,72,017/- made under Section 69 for unexplained investment in an offshore bank account, as it was based on information received prior to the search and not on any incriminating material found during the search.

8. Validity of the assessment based on a wrong Permanent Account Number:
The assessee argued that the assessment was invalid as it was based on a wrong Permanent Account Number. The Tribunal did not specifically address this issue as the primary legal issue regarding the scope of Section 153A was sufficient to quash the additions.

9. Compliance with notice issued under Section 142(1):
The assessee contended that the allegation of non-compliance with the notice under Section 142(1) was contrary to the facts. The Tribunal did not find it necessary to address this issue due to the primary finding on the scope of Section 153A.

Conclusion:
The Tribunal allowed the appeals for the Assessment Years 2006-07 and 2008-09, quashing the additions made under Section 153A as they were beyond the scope of the section, given that no incriminating material was found during the search. The Tribunal emphasized the settled judicial principle that in the absence of incriminating material, no addition can be made in the assessment under Section 153A for years where the assessment had attained finality.

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