2025 (1) TMI 836 - HC - Income Tax

Assessment u/s 153A - unexplained income u/s 68 - incriminating material was found during the operations conducted u/s 132 or not?HELD THAT - CIT(A) had decided the Assessee s appeal confined to the question whether Section 153A was applicable in the given facts CIT(A) had not decided the Assessee s challenge to the addition u/s 68. Thus, clearly the question whether the said addition had been rightly made by the AO did not arise for consideration of the learned ITAT notwithstanding that the ground to the aforesaid effect was raised by the Revenue. Thus, in effect, the Assessee s challenge to the addition u/s 68 had remained unaddressed by CIT(A) but had been affirmed by ITAT, without the same arising from the order passed by CIT(A). ITAT has clearly erred in entering into the said controversy without CIT(A) rendering any finding on merits in regard to the petitioner s appeal. The question of law as framed is decided in favor of the Assessee and against the Revenue. We consider it apposite to set aside the impugned order passed by ITAT to the limited extent that ITAT had determined the merits of the addition u/s 68 and restore the Assessee s appeal before CIT(A) on the grounds that were not decided by the CIT(A).

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

Whether the Tribunal erred in determining that the Assessing Officer (AO) had rightly added an amount of Rs. 4,30,00,000/- to the income of the Assessee as unexplained income under Section 68 of the Income Tax Act, 1961, despite the Commissioner of Income Tax (Appeals) [CIT(A)] not having rendered any finding regarding the said issue in the appeal preferred by the Assessee.
Whether the provisions of Section 153A of the Act were applicable in the absence of any incriminating material found during the search proceedings.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Applicability of Section 153A in the absence of incriminating material

Relevant legal framework and precedents: Section 153A of the Income Tax Act allows for the reassessment of income in cases where a search is conducted. However, the reassessment is typically based on incriminating materials found during the search.
Court's interpretation and reasoning: The court noted that the CIT(A) had decided the appeal on the basis that Section 153A was inapplicable since no incriminating material was found during the search.
Key evidence and findings: The CIT(A) found that although certain documents were seized during the search, these were already recorded in the Assessee's books of accounts and disclosed in the returns filed prior to the search.
Application of law to facts: The court agreed with the CIT(A) that the absence of incriminating material meant that Section 153A was not applicable for reassessment.
Treatment of competing arguments: The Revenue argued that the AO was empowered to reassess under Section 153A, but the court found that the CIT(A)'s decision was based on a correct interpretation of the law.
Conclusions: The court upheld the CIT(A)'s decision that Section 153A was inapplicable in the absence of incriminating material.

Issue 2: Addition of Rs. 4,30,00,000/- under Section 68

Relevant legal framework and precedents: Section 68 of the Income Tax Act pertains to unexplained cash credits. The AO had added Rs. 4,30,00,000/- as unexplained income under this section.
Court's interpretation and reasoning: The court found that the ITAT had erred by affirming the addition under Section 68 without the CIT(A) having addressed this issue on merits.
Key evidence and findings: The CIT(A) had not considered the merits of the addition under Section 68, focusing solely on the applicability of Section 153A.
Application of law to facts: The court determined that the ITAT should not have ruled on the addition under Section 68 since it was not addressed by the CIT(A).
Treatment of competing arguments: The Assessee argued that the ITAT's decision was premature as the CIT(A) had not ruled on the merits of the addition. The court agreed with this position.
Conclusions: The court set aside the ITAT's decision regarding the addition under Section 68 and remanded the matter to the CIT(A) for consideration on merits.

3. SIGNIFICANT HOLDINGS

Preserve verbatim quotes of crucial legal reasoning: "The learned ITAT has clearly erred in entering into the said controversy without the learned CIT(A) rendering any finding on merits in regard to the petitioner's appeal."
Core principles established: The reassessment under Section 153A requires incriminating material found during a search. Additionally, appellate bodies should not decide on issues not addressed by lower authorities.
Final determinations on each issue: The court upheld the CIT(A)'s decision that Section 153A was inapplicable and remanded the issue of unexplained cash credits under Section 68 back to the CIT(A) for a decision on merits.

The appeal was disposed of with directions to the CIT(A) to examine the Assessee's challenge to the addition under Section 68 on merits, while the applicability of Section 153A was concluded in favor of the Revenue.

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