2025 (3) TMI 85 - AT - Income Tax

Revision u/s 263 - validity of Assessment u/s 153A - HELD THAT -Hon ble Apex Court in Abhisar Buildwell P. Ltd. 2023 (4) TMI 1056 - SUPREME COURT has settled the proposition of law that search assessment framed under section 153A are to be restricted to incriminating material found during the search for those years (out of the block of six years prior to the year in which search was conducted) where the assessments are unabated. In the present case it s a fact on record that search action took place on the case on 31.1.2018. The impugned assessment before us is Asst. Year 2013- 14. There is no dispute with regard to the fact that the assessment for the impugned year was unabated. The issue with regards to which the ld.Pr.CIT has found the assessment order erroneous with regard to the source of investment in the immovable property not having been inquired into by the AO admittedly has not arisen from any evidences or documents found during the search. There is no such contention or fact put-forth either by the ld.Pr.CIT or even ld. DR before us. Therefore it is clear that applying the ratio laid down by the Hon ble Apex Court in Abhisar Buildwell P. Ltd. (supra) this issue could not have been considered by the AO during the assessment proceedings. We have no hesitation in setting aside the order of the ld.Pr.CIT finding the error noted by him to be not an error at all. Decided in favour of assessee.

ISSUES PRESENTED and CONSIDERED

The core legal questions considered in the judgment are:

1. Whether the assessment order passed under Section 153A read with Section 143(3) of the Income Tax Act, 1961, was erroneous and prejudicial to the interests of the revenue, justifying the invocation of revisionary powers under Section 263.

2. Whether the Assessing Officer (AO) was required to inquire into the source of investment in immovable property by the assessee, which was not disclosed in the return of income or books of accounts, in the absence of incriminating material found during the search.

3. Whether the provisions of Section 56(2)(vii)(b) regarding taxation of the difference between stamp duty value and actual consideration paid for property purchase were applicable for the assessment year 2013-14.

4. Whether the Principal Commissioner of Income Tax (Pr.CIT) was justified in directing further inquiry and verification beyond the scope of powers under Section 153A read with Section 143(3) and consequently under Section 263.

ISSUE-WISE DETAILED ANALYSIS

1. Erroneous and Prejudicial Assessment Order:

The legal framework under Section 263 allows the Pr.CIT to revise an assessment order if it is erroneous and prejudicial to the revenue. The Court analyzed whether the AO's failure to investigate the investment in immovable property constituted an error. The Court referenced the Supreme Court's decision in Abhisar Buildwell P.Ltd., which clarified that for unabated assessments under Section 153A, additions can only be based on incriminating material found during a search. Since no such material was found, the AO's lack of inquiry was not erroneous.

2. Inquiry into Source of Investment:

The Court examined whether the AO should have inquired into the source of investment in the absence of incriminating material. The Pr.CIT argued that the AO's failure to do so was an error. However, the Court, relying on the Supreme Court's interpretation, concluded that such an inquiry was beyond the AO's scope for unabated assessments under Section 153A, as no incriminating material was found during the search.

3. Applicability of Section 56(2)(vii)(b):

The Pr.CIT suggested that the difference between the stamp duty value and the actual consideration paid should have been taxed under Section 56(2)(vii)(b). However, the assessee contended that this provision was not applicable for the assessment year 2013-14, as it was effective from 1.04.2014. The Court did not need to address this issue directly, as the primary concern was the AO's failure to inquire into the investment source, not the application of Section 56(2)(vii)(b).

4. Scope of Inquiry and Verification:

The Court evaluated whether the Pr.CIT's direction for further inquiry exceeded the scope of powers under Section 153A and Section 263. The Court concluded that, based on the Supreme Court's decision, the AO's inquiry should have been limited to incriminating material found during the search. Since no such material was found, the Pr.CIT's directive for further inquiry was unwarranted.

SIGNIFICANT HOLDINGS

The Court held that the order passed under Section 263 by the Pr.CIT was not sustainable in law, as there was no error in the AO's order. The Supreme Court's decision in Abhisar Buildwell P.Ltd. established that search assessments under Section 153A must be based on incriminating material found during the search for unabated years. The Court found that the AO's lack of inquiry into the investment did not constitute an error, as it was beyond the scope of permissible inquiry under the legal framework.

Core Principles Established:

The Court reinforced the principle that for unabated assessments under Section 153A, any additions or inquiries must be based solely on incriminating material found during the search. The decision emphasized adherence to the legal framework as interpreted by the Supreme Court, ensuring that the AO's actions align with established legal precedents.

Final Determinations:

The appeal of the assessee was allowed, and the order of the Pr.CIT was set aside. The Court concluded that the AO's assessment order was not erroneous, as it complied with the legal standards set by the Supreme Court for search assessments under Section 153A.

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