2025 (5) TMI 1859 - AT - Income Tax

Assessment u/s 153A - Addition u/s 69C - foreign travel expenses unexplained - HELD THAT - In this case it is seen that the addition has been made without any incriminating material despite being assessment made u/s 153A of the Act. Therefore in the case of Pr. CIT vs Abhisar Buildwell 2023 (4) TMI 1056 - SUPREME COURT addition is not sustainable and the same is deleted. Appeal of the assessee is allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal in this appeal are:

(a) Whether the assessment framed under section 153A read with section 144 of the Income Tax Act, 1961 ("the Act") was valid and sustainable, particularly regarding jurisdiction and procedural compliance;

(b) Whether the Commissioner of Income Tax (Appeals) erred in disposing of the appeal ex-parte without granting an opportunity of hearing to the assessee;

(c) Whether the approval obtained under section 153D of the Act was valid or was mechanical and thus vitiated the assessment;

(d) Whether the addition of Rs. 1,50,000/- on account of unexplained expenditure incurred on foreign travel under section 69C read with section 115BBE of the Act was justified in absence of incriminating material;

(e) Whether the levy of interest under sections 234A and 234B of the Act was justified on the facts of the case.

2. ISSUE-WISE DETAILED ANALYSIS

(a) Validity of Assessment under Section 153A read with Section 144

The assessment was framed under section 153A r.w.s. 144 of the Act following a search and seizure operation under section 132. The Assessing Officer made additions based on unexplained expenditure discovered during the investigation. The assessee challenged the jurisdiction and validity of the assessment, contending that the framing of assessment and assumption of jurisdiction under section 153A/143(3) was erroneous.

The Tribunal noted that the assessment was completed after the assessee failed to appear despite repeated notices. The Assessing Officer relied on the provisions of section 144 which empower the Assessing Officer to make best judgment assessments in cases where the assessee fails to comply with statutory requirements. The Tribunal found no procedural infirmity in framing the assessment under these provisions given the non-appearance and non-compliance by the assessee.

The Tribunal also considered the contention regarding the approval obtained under section 153D, which was alleged to be mechanical and invalid. However, the Tribunal did not specifically dwell on the validity of such approval beyond noting the contention.

(b) Ex-parte Disposal of Appeal by CIT(A)

The assessee contended that the Commissioner of Income Tax (Appeals) erred in disposing of the appeal ex-parte without granting an opportunity of hearing. The assessee submitted that non-appearance was neither intentional nor deliberate and that written submissions had been uploaded prior to the hearing date.

The Tribunal, however, did not find merit in this ground as the appeal was disposed of on merits and the assessee had failed to appear despite opportunities. The Tribunal implicitly upheld the procedural propriety of the CIT(A)'s order.

(c) Addition of Rs. 1,50,000/- under Section 69C read with Section 115BBE on Foreign Travel Expenditure

This was the principal substantive issue. The Assessing Officer made an addition of Rs. 1,50,000/- representing estimated expenditure on foreign travel (two trips at Rs. 75,000/- each) on the basis that the assessee failed to provide details of passport, travel, expenses incurred, and source of funds despite issuance of show cause notices. The addition was made under section 69C (unexplained expenditure) read with section 115BBE (tax on unexplained income).

The CIT(A) confirmed the addition on the ground that the assessee failed to explain the expenses incurred on foreign trips.

The assessee challenged this addition before the Tribunal, contending that the addition was made without any basis of incriminating material and relied on the Supreme Court decision in Pr. CIT vs Abhisar Buildwell (2024) 2 SCC 433.

The Tribunal examined the legal framework governing assessments under section 153A, which is triggered by search and seizure operations and allows the Assessing Officer to reassess income escaped from assessment. However, the Supreme Court in the cited decision held that additions under section 153A must be based on incriminating material found during the search or seizure. Mere suspicion or failure to explain does not suffice to sustain additions.

Applying this precedent, the Tribunal found that the addition of Rs. 1,50,000/- was made without any incriminating material discovered during the search or investigation. The addition was based solely on the absence of explanation and an estimate of expenses incurred on foreign travel. The Tribunal held that such addition is not sustainable in law.

The Tribunal thus deleted the addition, stating: "Therefore, respectfully following the decision of the Hon'ble Supreme Court in the case of Pr. CIT vs Abhisar Buildwell (supra), the addition of Rs. 1,50,000/- is not sustainable and the same is deleted."

(d) Levy of Interest under Sections 234A and 234B

The assessee challenged the levy of interest under sections 234A and 234B, contending that interest was not leviable on the facts and circumstances of the case.

The Tribunal did not specifically analyze this issue in detail but, given the deletion of the addition and consequent reduction in income, the implication is that interest levied on the disallowed amount would not survive. The Tribunal's order allowing the appeal implicitly negates the interest demands.

3. SIGNIFICANT HOLDINGS

"Therefore, respectfully following the decision of the Hon'ble Supreme Court in the case of Pr. CIT vs Abhisar Buildwell (supra), the addition of Rs. 1,50,000/- is not sustainable and the same is deleted."

The core principle established is that additions under section 153A of the Income Tax Act must be founded on incriminating material discovered during search and seizure operations. Absent such material, mere unexplained expenditure or failure to furnish details does not justify addition under section 69C read with section 115BBE.

The Tribunal upheld the validity of assessment framed under section 153A/144 in procedural terms but struck down the substantive addition for lack of incriminating material. The appeal was allowed accordingly.