2025 (4) TMI 1205 - AT - Income Tax

Assessment order passed u/s 153A - incriminating material discovered in the course of search or not? - HELD THAT - As 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. The alleged incriminating material referred are primarily in the nature of statement of third person prior or subsequent to search/survey proceedings. Guided by the principles laid down by the Abhisar Buildwell (P.) Ltd. 2023 (4) TMI 1056 - SUPREME COURT Anand Kumar Jain (HUF) 2021 (3) TMI 8 - DELHI HIGH COURT and Vikram Dhirani 2024 (8) TMI 1503 - DELHI HIGH COURT we find force in the legal plea placed on behalf of the assessee. Hence in the absence of any incriminating material in an unabated assessment additions/ disallowances made by the AO in all captioned appeals requires to be quashed. Propriety of approval u/s 153D to the respective draft assessment orders placed before him by the AO - The approving authority has granted a mere technical approval by his own express admission in departure to a substantive approval expected in law. Curiously the Addl.CIT has recorded that he has granted approval on the basis of submission of the AO that proper opportunity has been provided to the Assessee; all the issues have been examined by him i.e. the AO and relevant copies of seized documents have been verified by him i.e. the AO before passing the draft order. The Addl. CIT thus effectively claimed that he has not pursued the relevant underlying material and proceeded on dotted line. Such an act cannot be regarded as effective discharge of duty of supervisory nature. Manifestly the Addl. CIT without any consideration of factual and legal position in proposed additions and without the availability of incriminating material collected in search etc. has buckled under statutory compulsion and proceeded to grant a symbolic approval to meet the statutory requirement. This approach of the Addl. CIT has ipso facto rendered the impugned approval to be a mere ritual or an empty formality to meet the statutory requirement and is thus incapable of being sustainable in law. The cryptic conclusion drawn by the CIT(A) is bereft of any plausible reasons whatsoever and thus cannot be reckoned to be a judicial finding on the point. The observations so made are not tenable in law. We are unhesitatingly disposed to hold that the integrity and propriety of impugned assessments under captioned appeals based on such combined approval memo u/s 153D in question cannot be countenanced in law. Assessee appeal allowed.

The core legal questions considered by the Tribunal in these appeals arising from search assessments under section 153A of the Income Tax Act, 1961, pertain primarily to the jurisdictional and procedural validity of the assessments and related approvals. The issues can be broadly categorized as follows:

(a) Whether additions made under section 153A in respect of assessment years 2013-14 and 2014-15, where the assessments were concluded and unabated at the time of search, are maintainable if they are not connected to any incriminating material found during the search of the assessee's premises;

(b) Whether the approval accorded by the competent authority under section 153D of the Act to the draft assessment orders was valid, or whether it was a mechanical, perfunctory act without application of mind, thereby vitiating the assessments;

(c) Whether the additions made under section 69A on merits, specifically relating to alleged unexplained commission income, were justified and supported by evidence.

Regarding the first issue on maintainability of additions under section 153A in unabated assessments, the Tribunal examined the statutory framework and judicial precedents governing search assessments. Section 153A mandates that assessments arising from search operations can only be made in respect of income disclosed or undisclosed that is revealed by incriminating material found during the search. The Tribunal noted that the assessments for the years under appeal were concluded under sections 143(1) or 143(3) before the search was initiated and thus were unabated.

The assessee contended that additions made under section 153A in such unabated assessments must be strictly linked to incriminating material discovered at the assessee's premises during the search. The Tribunal referenced authoritative Supreme Court decisions, including the landmark ruling in Pr. CIT v. Abhisar Buildwell (P.) Ltd., which restrict the scope of section 153A assessments in unabated cases to only those additions supported by incriminating material found during the search. Further, the Tribunal highlighted that material obtained from third parties or through post-search inquiries cannot be treated as incriminating material for the purposes of section 153A in unabated assessments; instead, such material would require proceedings under sections 153C or 148.

In the instant case, the Tribunal observed that the additions made under section 69A were primarily based on statements of third parties and information collected post-search, rather than any incriminating material recovered from the assessee's premises. The Tribunal also referred to relevant High Court decisions which held that statements of third persons in separate searches or surveys do not constitute incriminating material for the purposes of section 153A. Applying these principles, the Tribunal concluded that the additions under section 153A in these unabated assessments were unsustainable and liable to be quashed.

The second major issue concerned the validity of the approval accorded under section 153D to the draft assessment orders. Section 153D requires that an assessment order passed under section 153A must be preceded by prior approval of a designated superior authority, such as the Additional Commissioner of Income Tax. This approval is intended as a safeguard to ensure that the assessment is based on proper application of mind and is legally tenable.

The assessee challenged the approval memo on the grounds that it was a mechanical, omnibus approval given without independent scrutiny of the draft orders or the underlying seized material. The approval memo itself recorded that the Additional Commissioner granted approval based solely on assurances from the Assessing Officer that proper opportunities were afforded to the assessee, all issues were examined by the AO, and relevant seized documents were verified by the AO before passing the draft orders. The Tribunal found that the approving authority did not independently verify the material or apply mind to the merits of the assessments, but merely relied on the AO's representations, effectively relegating the statutory duty of supervision to the subordinate officer.

The Tribunal emphasized the statutory and judicial mandate that the approval under section 153D is not a mere formality or symbolic act but requires a substantive evaluation by the competent authority. It cited a plethora of judicial precedents from various High Courts and Tribunals condemning mechanical approvals and underscoring the necessity of due application of mind by the approving authority. The Tribunal held that the approval in this case amounted to a "technical approval" or "ritualistic approval" which fails to satisfy the statutory requirement and thus vitiates the assessment orders.

The Tribunal also noted that the first appellate authority had dismissed the objections regarding the approval in a cryptic manner, treating it as an internal administrative matter without proper judicial reasoning, which was legally untenable.

On the merits of the additions, particularly the unexplained commission income added under section 69A, the Tribunal found it unnecessary to delve into detailed adjudication given its findings on the jurisdictional issues. Since the assessments themselves were held to be unsustainable due to lack of incriminating material and defective approval, the merits of the additions did not require separate consideration.

In conclusion, the Tribunal held:

"In the absence of any incriminating material in an unabated assessment, additions/disallowances made by the AO in all captioned appeals require to be quashed."

Further, regarding the approval under section 153D, the Tribunal stated:

"The Addl. CIT has proceeded to accord approval under section 153D on the basis of mere assurances from the AO without independent application of mind, rendering the approval a mere ritual or empty formality incapable of being sustainable in law."

Accordingly, the Tribunal allowed the appeals, quashing the additions made under section 153A and setting aside the assessments for the years 2013-14 and 2014-15.

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