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2025 (5) TMI 782 - AT - Income TaxAssessment u/s. 153A - additions made by AO which was not based on incriminating material found during search relevant to the impugned assessment year - HELD THAT - Clearly the mandate of the decision of Abhisar Buildwell Private Limited 2023 (4) TMI 1056 - SUPREME COURT wherein it has been held that in case no incriminating material is unearthed during the search; the AO cannot assess or reassess taking into consideration the other material in respect of completed assessments/unabated assessments. Meaning thereby in respect of completed/unabated assessments no addition can be made by the AO in absence of any incriminating material found during search u/s 132 or requisition u/s 132A of the Act 1961 for that assessment year. Undeniably completed/unabated assessments can be re-opened by the AO in exercise of powers u/s 147/148 of the Act subject to fulfilment of the conditions as envisaged/mentioned u/s 147/148 of the Act and those powers are saved. We are not confronted with an assessment order passed u/s 147 of the Act but u/s 153A of the Act. Thus it is clear that there is no incriminating material found during the course of search for the impugn assessment year i.e. Ay 2013-14 and therefore the addition made by the AO is contrary to the provisions of Section 153A. Thus we do not have any hesitation in holding that the addition made by AO is contrary to the provisions of the law and judicial precedents cited before us. CIT DR does not appeal to us that though incriminating material stock statement based on which disclosure u/s 132 (4) is made is pertaining to AY 2017-18 but the stock statement obtained by the AO u/s 133 (6) of the act for other assessment years originates from that material and therefore such information should also be considered as incriminating material found during course of search. Addition u/s 69 - addition of undisclosed closing stock - When the information is received from government agency showing the opening and closing stock and if the opening stock is higher than the closing stock irrespective of maintenance of books of accounts not mentioning the same in tax audit report or in the annual accounts such stock is not found to have been acquired during the year. As the assessee did not acquire any stock during the impugned Assessment year but is carried forward from earlier years which cannot be disputed by the revenue thus there is no income during the year. It is apparent that neither the provisions of section 69 With respect to the unexplained investment or Section 69B relating to the amount of investments not fully disclosed in the books of accounts apply for the reason that Assessee has not made any investments during the year and further has provided an explanation about source of such investment being opening stock of the same year.
The core legal questions considered by the Tribunal in this appeal include:
1. Whether the search and seizure action conducted under section 132 of the Income-tax Act, 1961 was valid and lawful, particularly with respect to the requirement of prior information or material inducing belief necessary for such search. 2. Whether the Assessing Officer (AO) had jurisdiction to make an assessment under section 153A of the Act in the absence of incriminating material found during the search for the relevant assessment year (AY 2013-14). 3. Whether additions made by the AO to the income of the appellant on account of undisclosed closing stock of sub-grade iron ore were justified, including valuation and quantum of such stock. 4. Whether the retraction of a statement recorded under section 132(4) admitting undisclosed stock affects the validity of additions based on that statement. 5. Whether the AO was justified in not granting credit for opening stock while making additions for closing stock. 6. Whether interest under sections 234A, 234B, and 234C of the Act was correctly levied. Issue-wise Detailed Analysis: Validity of Search and Jurisdiction under Section 153A (Issues 1 and 2): The appellant challenged the legality of the search under section 132(1)(a), (b), and (c), contending that it was conducted without any prior information or material inducing belief, rendering the search and consequent assessment under section 153A null and void. Reliance was placed on Supreme Court precedents emphasizing the necessity of valid grounds for search and satisfaction recorded by the AO before issuing notice under section 153A. The Tribunal noted that these grounds were not pressed before it and dismissed them accordingly. However, the pivotal issue was whether the AO could disturb a concluded assessment (AY 2013-14) under section 153A in the absence of incriminating material found during the search relating to that year. It was undisputed that the original assessment for AY 2013-14 was completed in 2016, prior to the search conducted in November 2018. The material seized during the search pertained primarily to the financial year 2017-18, including stock statements of sub-grade iron ore. Subsequent to the search, the AO issued notices under section 133(6) to the Deputy Director of Mines & Geology (DMG) to collect data on stock quantities for earlier years, including AY 2013-14. The Tribunal relied on the Supreme Court decision in Abhisar Buildwell Pvt. Ltd., which held that in the absence of incriminating material found during the search for a particular assessment year, the AO cannot make additions or reassess income for that year under section 153A. The power to reopen assessments without such material lies under sections 147/148, which were not invoked here. The AO's reliance on information obtained during assessment proceedings under section 133(6) for AY 2013-14 was held not to constitute incriminating material found during the search. The Tribunal rejected the Revenue's argument that material pertaining to AY 2017-18 could be extended to earlier years, stating that such an interpretation would render all material collected during assessment proceedings as incriminating, contrary to law. Consequently, the Tribunal held that the addition for AY 2013-14 was made without valid jurisdiction under section 153A and was therefore unsustainable. Additions on Account of Undisclosed Closing Stock of Sub-grade Iron Ore (Issues 3, 9-14): The AO made an addition of Rs. 68.66 crores representing undisclosed closing stock of 11,03,983 metric tons of sub-grade iron ore valued at Rs. 622 per metric ton (cost of production), based on data obtained from the DMG and statements recorded during search proceedings. The appellant contended that:
The AO and CIT(A) rejected these contentions primarily on the ground that the appellant did not maintain a stock register, nor disclosed quantitative details in the tax audit report or annual accounts. The CIT(A) also relied on the statement of the Managing Director recorded under section 132(4), where the stock was initially admitted and valued at Rs. 622 per MT, and dismissed the retraction as a mere afterthought unsupported by evidence. The Revenue supported the addition by referring to the IBM Circular and judicial precedents emphasizing the evidentiary value of statements recorded during search and the applicability of AS 2. The Tribunal, however, noted that the quantitative details of opening and closing stock were obtained from an independent government agency (DMG) and that there was no production during the year due to the mining ban. The opening stock was higher than the closing stock, and sales were accounted for in the profit and loss account. Accordingly, the Tribunal held that the addition of closing stock without credit for opening stock was incorrect, as it resulted in a negative addition. The Tribunal further observed that provisions relating to unexplained investments (sections 69 and 69B) were not applicable since no fresh investments were made during the year and the stock was carried forward from earlier years. The Tribunal thus allowed the grounds challenging the quantum of addition and directed deletion of the addition on account of undisclosed closing stock. Retraction of Statement Recorded under Section 132(4) (Issue 4): The appellant retracted the statement admitting undisclosed stock, contending that the stock was waste with nil realizable value and thus should not be valued as income. The CIT(A) rejected the retraction relying on judicial precedents that self-serving retractions without corroborative evidence are inadmissible. The Tribunal concurred with the CIT(A) that the retraction was without merit and did not affect the validity of the initial admission. Non-grant of Credit for Opening Stock (Issue 5): The appellant argued that the AO erred in not granting credit for opening stock while making additions for closing stock, especially since the opening stock was higher than the closing stock and sales were disclosed. The CIT(A) dismissed this on the basis that the appellant failed to maintain stock registers and did not disclose quantitative details in statutory reports. The Tribunal, however, emphasized that the quantitative details were obtained from the DMG, an independent government agency, and that the absence of such disclosure in the appellant's records could not justify ignoring the opening stock. Since the opening stock exceeded the closing stock, the addition was unwarranted. This ground was allowed accordingly. Levy of Interest under Sections 234A, 234B, and 234C (Issue 6):The appellant challenged the levy of interest on grounds of incorrect calculation and non-applicability. The Tribunal dismissed this ground as consequential in nature following the decision on additions. Significant Holdings: "It is now a settled issue that a concluded assessment can be disturbed pursuant to search, only if incriminating material is found during search pertaining to that assessment year." "In the absence of incriminating material found during the course of search for the impugned assessment year, the addition made by the learned Assessing Officer is contrary to the provisions of Section 153A as well as the decision of the Honourable Supreme Court." "The addition of closing stock of 11,03,983 metric tons of the raw material without considering that there is an opening stock already higher than that closing stock of 16,92,673 metric tons, the addition in the hands of the assessee, even in case of an undisclosed stock of the raw material would be Negative." "The fact that neither the provisions of section 69 with respect to unexplained investment nor section 69B relating to the amount of investments not fully disclosed in the books of accounts apply for the reason that Assessee has not made any investments during the year and further has provided an explanation about source of such investment being opening stock of the same year." The Tribunal concluded that the addition under section 153A for AY 2013-14 was not sustainable in the absence of incriminating material found during search for that year, and that the addition on account of undisclosed closing stock was incorrect due to failure to consider opening stock and the nature of the stock as carried forward waste material. The retraction of the statement was held inadmissible as a ground to negate the addition. Interest charges were dismissed as consequential. The appeal was partly allowed accordingly.
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