2022 (4) TMI 449 - AT - Income Tax

Validity of Assessment u/s 153A - proof of incriminating materials found in the search - whether the addition could be framed u/s 153A of the Act in respect of a concluded proceeding without the existence of any incriminating materials found in the course of search? - HELD THAT - We find that the provisions of section 132 of the Act relied upon by the revenue would be relevant only for the purpose of conducting the search action and initiating proceedings u/s 153A - Once the proceedings u/s 153A of the Act are initiated, which are special proceedings, the legislature in its wisdom bifurcates differential treatments for abated assessments and unabated assessments. In respect of abated assessments (i.e pending proceedings on the date of search) , fresh assessments are to be framed by the ld AO u/s 153A of the Act which would have a bearing on the determination of total income by considering all the aspects, wherein the existence of incriminating materials does not have any relevance - in respect of unabated assessments, the legislature had conferred powers on the ld AO to just follow the assessments already concluded unless there is an incriminating material found in the search to disturb the said concluded assessment. In our considered opinion, this would be the correct understanding of the provisions of section 153A of the Act , as otherwise, the necessity of bifurcation of abated and unabated assessments in section 153A of the Act would become redundant and would lose its relevance. We find that this issue had been the subject matter of adjudication in the case of CIT vs Continental Warehousing Corporation (Nhava Sheva) Ltd 2015 (5) TMI 656 - BOMBAY HIGH COURT which had been decided in favour of the assessee and accordingly would bind this tribunal Thus we hold that the assessment framed u/s 143(1) of the Act for the Asst Year 2009-10 , which was unabated / concluded assessment, on the date of search, deserves to be undisturbed in the absence of any incriminating material found in the course of search and accordingly the disallowances / additions made thereon are hereby directed to be deleted. - Appeal of assessee allowed.

Summary

Issues Involved:
1. Justification of disallowances/additions without incriminating material found during the search.
2. Interpretation of Section 153A in relation to concluded/unabated assessments.
3. Relevance of incriminating material in search assessments.
4. Jurisdiction and authority of the Assessing Officer (AO) under Section 153A.
5. Distinction between abated and unabated assessments.

Detailed Analysis:

1. Justification of Disallowances/Additions without Incriminating Material:
The primary issue was whether the Commissioner of Income Tax (Appeals) [CIT(A)] was justified in confirming the disallowances/additions made by the Assessing Officer (AO) without any incriminating material found during the search for an unabated assessment. The assessee argued that the additions were made without referring to any seized documents, which should not be permissible as per the decisions of the Hon'ble Jurisdictional High Court in Continental Warehousing Corporation and the Hon'ble Delhi High Court in Kabul Chawla. The AO, however, proceeded with disallowances and additions, including treating interest income as income from other sources (?77,95,481), addition on account of bogus purchases (?15,77,250), and disallowance under Section 40(a)(i) (?7,00,234).

2. Interpretation of Section 153A in Relation to Concluded/Unabated Assessments:
The tribunal addressed the preliminary issue of whether additions could be framed under Section 153A for a concluded proceeding without incriminating materials. The scheme of the Act provides for the abatement of pending proceedings as of the search date. The tribunal held that the legislature does not differentiate whether the assessments were originally framed under Section 143(1), 143(3), or 147. Hence, unless there is incriminating material found during the search, the AO does not have the power to disturb the findings of a concluded assessment.

3. Relevance of Incriminating Material in Search Assessments:
The tribunal emphasized that disallowances/additions made by the AO in Section 153A assessments were already part of the regular books of accounts and cannot be construed as incriminating. The tribunal referred to various judicial precedents, including the Hon'ble Delhi High Court's decision in Kabul Chawla, which held that in the absence of incriminating material, completed assessments can only be reiterated, and no additions can be made.

4. Jurisdiction and Authority of the AO under Section 153A:
The tribunal noted that the AO's jurisdiction under Section 153A allows for the assessment or reassessment of total income for six assessment years preceding the year of search. However, for concluded assessments, the AO can only interfere based on incriminating material found during the search. The tribunal cited several judicial precedents, including the Hon'ble Delhi High Court in Kabul Chawla and the Hon'ble Jurisdictional High Court in Continental Warehousing Corporation, to support this interpretation.

5. Distinction between Abated and Unabated Assessments:
The tribunal explained that the scheme of Section 153A differentiates between abated and unabated assessments. For abated assessments (pending on the date of search), fresh assessments are framed considering all aspects, without the necessity of incriminating material. For unabated assessments (concluded before the search), the AO can only make additions based on incriminating material found during the search. This distinction ensures that the AO does not have unfettered powers to review earlier decisions without new evidence.

Conclusion:
The tribunal concluded that the assessment for the Assessment Year 2009-10, which was a concluded assessment on the date of search, should remain undisturbed in the absence of any incriminating material found during the search. Consequently, the disallowances/additions made by the AO were directed to be deleted. The tribunal refrained from giving findings on the merits of the disallowances/additions, as the issue was addressed on the preliminary ground of the absence of incriminating materials. The appeal of the assessee was allowed.