2019 (10) TMI 304 - AT - Income Tax

Excess of jurisdiction by framing assessment u/s 153A/143(3) - whether no incriminating documents was found and / or seized during search and he did not adjudicate other grounds of appeal on merit - Addition u/s 68 - HELD THAT - The penalty u/s 271(1)(c) of the Act were levied for the AYs 2005-06 2006-07 on the ground that the additional income was offered in the return filed u/s 153A after the search u/s 132 was conducted. Hon ble High Court in NEERAJ JINDAL SHRI NEERAJ JINDAL SHRI ANKUR AGGARWAL 2017 (2) TMI 1002 - DELHI HIGH COURT held that for the purposes of application of Explanation 5 to Section 271(1)(c) as was in force at the time of search gave immunity to the assessee from payment of penalty if in the returns furnished u/s 153A the additional was offered and conditions prescribed therein were satisfied. The observations of the Hon ble High Court relied upon by the CIT DR were made in the light of and in the context of the provisions of Section 271(1)(c) read with Explanation 5 thereto and the Hon ble High Court in the said decision was not called upon to decide or adjudicate the scope and ambit of the assessment to be framed u/s 153A of the Act in the case of the person searched. In the case before the Hon ble High Court the assessee had admittedly offered additional income with reference to incriminating material found in the course of search and therefore the Hon ble High Court did not have occasion to go into the question as to whether the income was assessed with reference to incriminating material found in the course of search or not. We therefore find that certain observations in the said decision which are sought to be used by the ld. CIT DR to buttress his argument is flawed. We find that the specific issue in the present appeal is squarely answered in the favour of the assessee in the M/s Loyalka Farms Pvt Ltd decision 2018 (11) TMI 1001 - ITAT KOLKATA of this Tribunal. Applying the proposition of law laid down in the above decision to the facts of the case on hand we find that the only addition made by the AO u/s 68 of the Act in the relevant unabated assessment year was not based on any incriminating material found during the course of search. Appeal of the Revenue is dismissed.

Summary

Issues Involved:
1. Jurisdiction of AO under section 153A/143(3) without incriminating documents.
2. Validity of additions without incriminating material in assessments under section 153A.
3. Distinction between Section 153A and Section 153C assessments.
4. Interpretation of "incriminating material" in search assessments.
5. Legal principles governing assessments for unabated years.

Detailed Analysis:

1. Jurisdiction of AO under section 153A/143(3) without incriminating documents:
The Revenue's appeal challenged the CIT(A)'s decision to allow the assessee's appeal on the grounds that the AO acted beyond jurisdiction by framing assessments under section 153A/143(3) without finding or seizing incriminating documents during the search. The CIT(A) relied on the Calcutta High Court's decision in PCIT vs Salasar Stock Broking Ltd. and CIT vs Veer Prabhu Marketing Ltd., which held that a nexus with incriminating material is necessary for additions under section 153A/143(3).

2. Validity of additions without incriminating material in assessments under section 153A:
The Tribunal highlighted that for unabated assessments, no additions can be made unless based on incriminating material found during the search. The original return filed by the assessee and the subsequent search did not yield any incriminating material. Consequently, the AO's addition of Rs. 80,78,400 as unexplained cash credit under section 68 was not justified. The Tribunal upheld the CIT(A)'s decision to delete the addition.

3. Distinction between Section 153A and Section 153C assessments:
The Tribunal noted that Section 153A does not require the existence of seized incriminating material for making assessments, unlike Section 153C, which necessitates that seized material must belong to or pertain to the assessee. The Tribunal emphasized that assessments under section 153A should be based on the total income, including any undisclosed income discovered during the search.

4. Interpretation of "incriminating material" in search assessments:
The Tribunal discussed the legal interpretation of "incriminating material" and noted that the term is not explicitly mentioned in the Income Tax Act but has been judicially interpreted. The Tribunal referred to various High Court decisions, including the Delhi High Court in CIT vs Kabul Chawla, which held that for unabated assessments, additions must be based on incriminating material found during the search.

5. Legal principles governing assessments for unabated years:
The Tribunal reiterated that for assessments that have not abated, the AO cannot make additions unless based on incriminating material found during the search. The Tribunal emphasized that the provisions of Section 153A are special provisions for completing assessments in case of search or requisitions and should be invoked only when incriminating material is found.

Conclusion:
The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision to delete the addition of Rs. 80,78,400, as it was not based on any incriminating material found during the search. The Tribunal emphasized the necessity of incriminating material for making additions in unabated assessments under section 153A.