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2025 (3) TMI 1408 - AT - Income TaxApproval granted u/s 153D - as argued that the approval obtained was done in a mechanical manner i.e. approval was granted without due application of mind and without reviewing the essential documents by the approving authority - HELD THAT - We are of the considered view that the approval has not been granted in a mechanical manner by the Approving Authority and therefore this legal ground of the assessee is hereby rejected. Assessment u/s 143(3) r.w.s. 153A/153C must strictly be based on incriminating material that is found during the course of a search in case of unabated assessment year - The legal proposition that in case of search cases relating to unabated assessment years addition can be made only on the basis of incriminating material found during the course of search is a well-settled / well-accepted legal proposition. There is no dispute so far as this legal proposition is concerned. Therefore this brings us to the question whether in the instant case the additions have been made on the basis of incriminating material found during the course of search or not. Assessee has stated that all the additions for all the assessment years before us (seven in total) have not been made on the basis of any incriminating material found during the course of search. It has stated that all the additions have been made only on the basis of recommendation of special auditor and therefore no addition is liable to be sustained. Addition made in absence of any incriminating material found during the course of search - Additions have been made during the course of assessment in the case of the assessee and evidently some of which is on the basis of incriminating material found in the course of search as pointed out by us in the preceding paragraphs in interest of justice the matter is restored to the file of CIT(Appeals) so as to allow one more opportunity to the assessee to file documentary evidence in support of its case and thereafter in light of the evidence produced by the assessee decide each of the disallowances/additions on merits of the case. If however with respect to any particular addition/disallowance the assessee is able to substantiate/ demonstrate that the particular addition does not have any reference to any incriminating material found during the course of search then keeping in view the legal principle that in case of search cases for unabated assessment years no additions can be made in absence of any incriminating material found during the course of search such addition may be deleted in the hands of the assessee. Once books of accounts were rejected u/s 145 (3) no addition can be made in respect of items reflected in the books of accounts - As in light of these facts certain information was sought from the assessee during the course of assessment proceedings by the Special Auditor but the assessee was found to be absolutely non-cooperative. The assessee took every step to thwart/stonewall the assessment proceedings including filing of writ petition challenging the validity of search proceedings as well as challenging the validity of appointment of special auditor in this case. Taking into consideration the assessee s particular set of facts dismissed both the writ petitions filed by the assessee thereby validating the initiation of search proceedings as well as appointment of special auditor looking into assessee s particular set of facts. As mentioned above the additions have not been made only taking into consideration the books of accounts of the assessee but also taken into consideration the incriminating material found during the course of search. Therefore the above legal argument does not come to the support of the assessee and the case laws/judicial precedents on which reliance has been placed by the assessee are found to be distinguishable on facts. This legal argument of the assessee is hereby rejected.
ISSUES PRESENTED and CONSIDERED
The key legal issues considered in this judgment include:
ISSUE-WISE DETAILED ANALYSIS Approval under Section 153D The legal framework requires that approval under Section 153D should not be a mere formality but should involve due application of mind by the approving authority. The Court examined whether the Joint Commissioner of Income Tax (JCIT) granted approval without reviewing essential documents. The Department argued that the JCIT was aware of the case details from the beginning of the search operations, as per the Guidelines issued on 22nd December 2006. The Court found that the approval was not mechanical, as the JCIT was involved from the start and had access to comprehensive case records. The Court concluded that the approval process adhered to the procedural requirements, and thus, this legal ground was rejected. Additions Based on Incriminating Material The Court considered whether the additions made in the assessments were based on incriminating material found during the search, particularly for unabated assessment years. The assessee argued that the additions were based solely on the special auditor's report and not on any incriminating material. However, the Court noted that several discrepancies were identified between the seized data and the audited accounts, which were indicative of incriminating material. The Court emphasized that each addition should be linked to specific incriminating evidence. The matter was remanded to the CIT(A) to allow the assessee to present evidence and to verify if any additions lacked a basis in incriminating material. Rejection of Books of Accounts The assessee contended that once the books of accounts were rejected under Section 145(3), no further additions could be made based on those books. The Court distinguished the cases relied upon by the assessee, noting that search assessments involve unique complexities. The Court found that the additions were not solely based on the rejected books but also on incriminating material found during the search. Thus, this argument was rejected. Assessment Year 2006-07 and Section 153C The argument was made that the assessment for the year 2006-07 fell outside the permissible period for initiating proceedings under Section 153C. The Court noted that this issue was raised for the first time and remanded it to the CIT(A) for consideration, allowing for further investigation into the date when the case records were received by the AO and the applicability of relevant judicial precedents. SIGNIFICANT HOLDINGS The Court held that the approval under Section 153D was not mechanical, as the JCIT was involved from the start and had comprehensive knowledge of the case. The Court emphasized the need for additions in search assessments to be based on incriminating material and remanded the matter to the CIT(A) for further verification. The Court rejected the argument that no additions could be made once books of accounts were rejected, noting that the additions were also based on incriminating material. The issue regarding the assessment year 2006-07 was remanded for further consideration.
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