2018 (3) TMI 47 - AT - Income Tax

Assessment u/s 153A - addition of undisclosed income - absence of any incriminating material found during the course of search - Held that - CIT(A) specifically asked the remand report of the AO on the aforesaid contention of the assessee. In response, the AO in his remand report dated 16.03.2016 admitted that though no documents were found/seized nor there was any admission by the assessee during the course of search but the addition was made as the assessee failed to establish the identity, creditworthiness and genuineness of the share capital/premium. From the above observation of the AO, it is crystal clear that no incriminating material was found during the course of search relating to the impugned addition. See CIT Vs Kabul Chawala (2015 (9) TMI 80 - DELHI HIGH COURT) - Decided in favour of assessee.

Summary

Issues Involved:
1. Deletion of additions made by the Assessing Officer (AO) on account of undisclosed income.
2. Validity of notice issued under section 153A of the Income Tax Act.
3. Jurisdiction and power of AO to reassess income without incriminating material found during the search.

Detailed Analysis:

1. Deletion of Additions Made by AO on Account of Undisclosed Income:
The primary grievance of the department was the deletion of the addition of ?2,50,00,000/- made by the AO on account of undisclosed income. The AO had made this addition under section 68 of the Income Tax Act, claiming that the assessee failed to establish the identity, creditworthiness, and genuineness of the share capital/premium received from various companies. However, the Commissioner of Income Tax (Appeals) [CIT(A)] deleted the addition, relying on the decision of the Hon’ble Delhi High Court in the case of Kabul Chawla Vs CIT, which held that no additions can be made if no incriminating material is found during the search.

2. Validity of Notice Issued Under Section 153A of the Income Tax Act:
The assessee argued that the notice issued under section 153A was void ab initio since the assessment was already completed before the date of the search, and no incriminating material was found during the search. The CIT(A) agreed with this contention, noting that the assessment was completed twice before the search, and no new material was found during the search that could justify the addition.

3. Jurisdiction and Power of AO to Reassess Income Without Incriminating Material:
The AO contended that he had the power to reassess the income not only based on undisclosed income found during the search but also on other material available at the time of the original assessment. However, the CIT(A) and the Tribunal relied on the judgment of the Hon'ble Delhi High Court in the case of Kabul Chawla, which clarified that completed assessments can only be interfered with if there is incriminating material found during the search. Since no such material was found, the additions made by the AO were not justified.

Judgment:
The Tribunal upheld the findings of the CIT(A), stating that no incriminating material was found during the search, and therefore, the AO's addition of ?2,50,00,000/- was not justified. The Tribunal relied on the legal position established by the Hon'ble Delhi High Court in the case of Kabul Chawla, which mandates that in the absence of any incriminating material, completed assessments cannot be disturbed. The appeals of the department were dismissed.

Conclusion:
The judgment reinforces the principle that additions under section 153A can only be made based on incriminating material found during the search. The AO's power to reassess is limited in cases where the original assessment is already completed, and no new incriminating material is discovered. The Tribunal's decision to dismiss the department's appeals aligns with the established legal framework and precedents.