2025 (3) TMI 82 - AT - Income Tax

Validity of additions made u/s 153A in the absence of incriminating material found during the search - addition u/s 68 for unsecured loans and u/s 37(1) for disallowance of interest expenses - HELD THAT - As decided in PCIT v/s Abhisar Buildwell (P.) Ltd. 2023 (4) TMI 1056 - SUPREME COURT wherein held that in case no incriminating material is found during the search conducted under section 132 of the Act the AO has no jurisdiction to make an assessment in respect of completed/unabated assessments. We find that in PCIT v/s Pavitra Realcon (P) Ltd. 2024 (5) TMI 1408 - DELHI HIGH COURT held that statement under section 132(4) of the Act alone without any other material discovered during the search which would corroborate search statement do not grant the AO authority to make an assessment. Since in the present case it is undisputed that the assessment year under consideration is an unabated/concluded year therefore we find no basis in upholding the additions made by the AO u/s 68 and disallowance made u/s 37(1) of the Act in the absence of incriminating evidence found during the search. Decided in favour of assessee.

ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment include:

Whether the additions made by the Assessing Officer (AO) under section 68 of the Income Tax Act, 1961, for unsecured loans, and under section 37(1) for disallowance of interest expenses, were valid in the absence of incriminating material found during the search.
Whether the assessment order is invalid due to the lack of incriminating material found during the search, as claimed by the assessee.
The validity of the assessment order in the absence of valid approval under section 153D of the Act.
Whether the delay in filing the cross-objection by the assessee should be condoned.

ISSUE-WISE DETAILED ANALYSIS

1. Validity of Additions under Section 68 and Disallowance under Section 37(1)

Legal Framework and Precedents: Section 68 deals with unexplained cash credits, requiring the assessee to prove the genuineness of transactions and the creditworthiness of lenders. Section 37(1) pertains to the disallowance of expenses not wholly and exclusively for business purposes. The Supreme Court in PCIT v/s Abhisar Buildwell (P.) Ltd. established that in the absence of incriminating material found during a search, the AO cannot make additions for completed/unabated assessments.
Court's Interpretation and Reasoning: The Tribunal emphasized that additions under sections 68 and 37(1) must be based on incriminating material found during the search. In this case, the AO's additions were based on publicly available data and not on any material found during the search.
Key Evidence and Findings: The AO relied on financial data, MCA portal information, and statements recorded under section 132(4) of the Act. The Tribunal found no incriminating material to support the additions.
Application of Law to Facts: The Tribunal applied the precedent set by the Supreme Court, concluding that the additions were unsustainable as they were not based on incriminating material found during the search.
Treatment of Competing Arguments: The Tribunal considered the assessee's argument regarding the lack of incriminating material and the AO's reliance on statements and public data, ultimately siding with the assessee.
Conclusions: The Tribunal deleted the additions under sections 68 and 37(1) due to the absence of incriminating material.

2. Validity of Assessment Order and Approval under Section 153D

Legal Framework and Precedents: Section 153D requires prior approval for assessments under section 153A. The Tribunal did not specifically address this issue, as the primary focus was on the absence of incriminating material.
Court's Interpretation and Reasoning: The Tribunal found the issue academic, given the deletion of additions based on the primary issue of incriminating material.
Conclusions: The Tribunal left the issue open, deeming it academic in light of their findings on the primary issue.

3. Condonation of Delay in Filing Cross-Objection

Legal Framework and Precedents: The Tribunal referred to the Supreme Court's decision in Collector Land Acquisition, Anantnag v/s MST Katiji, which emphasizes that procedural rules should facilitate justice.
Court's Interpretation and Reasoning: The Tribunal accepted the assessee's reasons for delay, finding them within acceptable parameters for condonation.
Conclusions: The Tribunal condoned the delay, allowing the cross-objection to be decided on its merits.

SIGNIFICANT HOLDINGS

The Tribunal held that in the absence of incriminating material found during a search, the AO lacks jurisdiction to make additions in respect of completed/unabated assessments, aligning with the Supreme Court's ruling in PCIT v/s Abhisar Buildwell (P.) Ltd.
Statements recorded under section 132(4) alone, without corroborative material, cannot justify additions, as supported by the Delhi High Court's decision in PCIT v/s Pavitra Realcon (P) Ltd.
The Tribunal concluded that procedural rules should not hinder substantial justice, leading to the condonation of the delay in filing the cross-objection.
The Tribunal dismissed the Revenue's appeal and allowed the assessee's cross-objection, emphasizing the necessity of incriminating material for additions under sections 68 and 37(1).

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