2024 (12) TMI 1050 - AT - Income Tax

Assessment u/s 153A - assessment years were pending on the date of search and thus stood abated - HELD THAT - It is the case of the assessee that so-called incriminating material referred to in the assessment order are in the shape of statements recorded of third person i.e. Shri Pawan Agarwal much prior to search and material found in the case of other person. On perusal of the assessment orders and the first appellate order, it is observed that there does not appear to be any reference to any incriminating material found in the course of search of the assessee per se. Alleged incriminating material referred are primarily in the nature of statement of third person prior to search and material found in the course of search of the third person. This being so, the additions made in assessment years 2012-13, 2013-14 2014-15 are outside the ambit of jurisdiction u/s 153A - In view of the judgement rendered in the case of Pr. CIT v. Abhisar Buildwell (P.) Ltd. 2023 (4) TMI 1056 - SUPREME COURT relied on behalf of the assessee, the additions made in unabated assessment are not permissible u/s 153A of the Act. Additions made u/s 153A in the absence of incriminating material - Additions made u/s 153A in the absence of incriminating material is not justified do not appear to be in consonance of law governing the field, since the AYs 2015-16 and subsequent AYs were pending at the time of search and stood abated. In the abated assessments, the power of the AO is not limited to incriminating material found in the course of search alone. The plea of the assessee is thus rejected. We however find merit in the plea of the assessee that in view of the averments made in the remand report obtained by CIT(A) for different assessment years under appeal, the impugned additions retained by the Ld.CIT(A) is not justified. Where the AO has categorically observed that explanation offered in respect of funds received by the assessee on account of sale of investments held by the assessee in preference shares is substantiated by documentary evidences, the Ld.CIT(A) ought not have brushed aside such view without substantive reasons. Where the AO himself has accepted veracity on source of funds in question, the action of the Ld.CIT(A) confirming the original assessment in ignorance of remand report is not justified without showing how the AO has committed error in such findings in Remand Report. The additions sustained by the CIT(A) despite categorical observations of the AO in the remand proceedings is thus not sustainable in law in the facts of the case.

Issues Involved:

1. Jurisdictional validity of additions under Section 153A for unabated assessment years.
2. Legality of additions based on materials found in the case of third parties.
3. Merits of the additions in light of remand reports.
4. Validity of mechanical approval under Section 153D.

Issue-wise Detailed Analysis:

1. Jurisdictional Validity of Additions under Section 153A for Unabated Assessment Years:

The Tribunal considered the appeals for assessment years 2012-13, 2013-14, and 2014-15, which were concluded (unabated) at the time of the search. The main contention was that the additions made under Section 153A were not based on any incriminating material found during the search. The Tribunal observed that the assessment orders and the first appellate order did not reference any incriminating material specific to the assessee. The additions were based on statements from a third person and materials found in the case of another person. Citing the judgment in Pr. CIT v. Abhisar Buildwell (P.) Ltd., the Tribunal held that in the absence of incriminating material, additions in unabated assessments are not permissible under Section 153A. Consequently, the Tribunal set aside the orders of the CIT(A) for these years and reversed the additions.

2. Legality of Additions Based on Materials Found in the Case of Third Parties:

The Tribunal addressed the issue of whether additions could be made under Section 153A based on materials found in the case of third parties. It was argued that the proper course of action would have been to initiate proceedings under Section 153C. The Tribunal agreed with this view, referencing the decision in Pushpa Devi Bajaj vs. DCIT, where it was held that Section 153C proceedings are mandatory in such scenarios. Thus, the additions based on third-party materials were deemed unsustainable under Section 153A.

3. Merits of the Additions in Light of Remand Reports:

For assessment years 2015-16, 2016-17, and 2017-18, which were pending (abated) at the time of the search, the Tribunal examined the merits of the additions. The assessee contended that the additions were made without incriminating material and that the remand reports from the AO supported the genuineness of the transactions. The remand reports indicated that the AO found the explanations and documentary evidence provided by the assessee to be satisfactory. Despite this, the CIT(A) confirmed the additions. The Tribunal found that the CIT(A) erred in disregarding the remand reports without substantive reasons. It concluded that the additions were not justified when the AO had verified and accepted the source of funds. Therefore, the Tribunal reversed the CIT(A)'s decision for these years.

4. Validity of Mechanical Approval under Section 153D:

The issue of mechanical approval under Section 153D was raised, suggesting that the approval process was not properly adhered to. However, given the Tribunal's findings on the primary issues, it did not find it necessary to delve into this contention further.

Conclusion:

The Tribunal allowed all the appeals filed by the assessee, setting aside the orders of the CIT(A) and reversing the additions made under Section 153A for all the assessment years in question. The decision emphasized the necessity of incriminating material for additions in unabated assessments and the importance of adhering to proper procedural requirements when dealing with materials related to third parties.

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