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2025 (6) TMI 1212 - AT - Income TaxAssessment u/s 153A - incriminating material unearthed/gathered during the course of search with regard to the respective assessment year or not? - HELD THAT - Argument advanced by the Ld. Senior Counsel that unabated assessment cannot be reopened in the absence of any incriminating material unearthed during the course of search found to have been taken care in its proper perspective by the Ld. CIT(A). Addition has admittedly on estimated basis on alleging unaccounted investment made by the assessee and mainly on the basis of loose documents unearthed during the course of search of the third party namely Sh. Punit Gupta which cannot be said to be incriminating nature nor pertaining to the assessment year under appeal as we have discussed hereinabove and therefore having regard to the judgment passed by the Hon ble Apex Court in the case of Abhisar Buildwell 2023 (4) TMI 1056 - SUPREME COURT the addition made in completed/unabated assessment in the absence of incriminating material found during the course of search under Section 132 or requisition under Section 132A of the Act has rightly found to be invalid and deleted by the said order; according to us the same is just and proper so as not to warrant interference. The appeal preferred by the Revenue is found to be devoid of any merit and thus dismissed. Appeal of the Revenue is dismissed.
Issues Presented and Considered
The core legal questions addressed in the judgment are: 1. Whether reopening and making additions under Section 153A of the Income Tax Act, 1961 (the Act) in respect of a completed/unabated assessment year is permissible in the absence of incriminating material found during the course of search under Section 132 or requisition under Section 132A of the Act. 2. Whether documents found during search from the possession of third parties can be used to make additions under Section 153A of the Act in the assessment of the assessee. 3. Whether the addition made on the basis of estimated market value derived from undated, unsigned, and third-party documents without corroborative evidence can be sustained under Section 69B of the Act. 4. The applicability and scope of the principles laid down by the Supreme Court and various High Courts regarding the nexus between incriminating material found during search and the validity of proceedings under Section 153A. Issue-wise Detailed Analysis Issue 1: Reopening of Completed/Unabated Assessment under Section 153A in Absence of Incriminating Material Legal Framework and Precedents: Section 153A of the Act empowers the Assessing Officer (AO) to reassess or assess income of a person in consequence of a search under Section 132 or requisition under Section 132A. However, the law and judicial precedents clarify that such proceedings can only be initiated if incriminating material relevant to the assessment year is found during the search. Key precedents relied upon include:
Court's Interpretation and Reasoning: The Tribunal found that the assessment year under consideration (2010-11) was beyond the six-year window for reopening under Section 153A, as the search was conducted in 2017 and notice was issued in 2019. The CIT(A) and the Tribunal noted that no incriminating material pertaining to the assessee for AY 2010-11 was found during the search. The only material basis for addition was an undated, unsigned loose sheet found at the residence of a third party, which could not be linked conclusively to the assessee or the relevant assessment year. The Tribunal relied heavily on the principle that reopening under Section 153A for completed/unabated assessments requires the presence of incriminating material found during the search related to that year. Since no such material was found, the reopening and subsequent addition were held to be invalid. Key Evidence and Findings: The addition was based on an estimated market value of land derived from a loose sheet (page 92) found at the residence of Mr. Punit Gupta, a third party. This document was undated, did not mention the assessee's name, and did not pertain to the property purchased by the assessee. The AO rejected the valuation report of the District Valuation Officer (DVO), which had supported the declared value of the land, on the basis of assumptions and uncorroborated documents. Application of Law to Facts: The Tribunal applied the settled legal principle that the AO cannot reopen completed assessments under Section 153A unless incriminating material is found during search. Since the only material was found from a third party and was not incriminating or related to the assessee's transaction for the relevant year, the reopening was held to be invalid. Treatment of Competing Arguments: The Revenue argued that the loose sheet indicated higher market value and unaccounted cash payment and that the DVO's valuation was wrongly rejected. The assessee contended that the document was third-party material, undated, and unrelated to the relevant year or property, and that reopening was impermissible without incriminating material. The Tribunal agreed with the assessee's contentions, emphasizing the absence of nexus between the document and the assessee's transactions for AY 2010-11. Conclusions: The Tribunal concluded that reopening under Section 153A was invalid in the absence of incriminating material found during the search, and the addition based on third-party documents was unsustainable. Issue 2: Use of Third-Party Documents in Proceedings under Section 153A Legal Framework and Precedents: It is a settled position that documents found from the possession of third parties during search cannot be used directly in proceedings under Section 153A against the assessee. Such documents, if relevant, should be considered under Section 153C, which deals with search and seizure in relation to a person other than the one searched. The Tribunal referred to the jurisdictional High Court decision in PCIT (Central)-3 vs. Anand Kumar Jain (HUF), which held that third-party documents cannot be used to make additions under Section 153A. Court's Interpretation and Reasoning: The Tribunal observed that the loose sheet on which the addition was based was found at the residence of Mr. Punit Gupta, a third party. Since the document was neither dated nor contained any reference to the assessee, it could not be treated as incriminating material against the assessee in proceedings under Section 153A. Key Evidence and Findings: The document was an estimate of land cost and related expenses but was undated and unsigned, and no transaction involving the assessee was mentioned. The AO failed to establish a nexus between the document and the assessee's transactions. Application of Law to Facts: The Tribunal applied the principle that third-party documents cannot form the basis of additions under Section 153A unless linked directly to the assessee. Since this nexus was missing, the addition was invalid. Treatment of Competing Arguments: The Revenue contended that the document indicated higher market value and unexplained cash payment, but the Tribunal rejected this, noting absence of any direct link or corroborative evidence. Conclusions: The Tribunal held that third-party documents without direct connection to the assessee cannot be used for making additions under Section 153A, leading to deletion of the addition. Issue 3: Validity of Addition Based on Estimated Market Value and Unexplained Cash Payment under Section 69B Legal Framework and Precedents: Section 69B of the Act deals with unexplained investments, and additions under this section require proof of unexplained cash payment or investment. The AO must discharge the burden of proof by bringing on record credible evidence. Court's Interpretation and Reasoning: The AO made an addition of Rs. 73,46,75,000/- on account of unexplained cash payment based on the estimated market value derived from the third-party document. The CIT(A) and Tribunal found that the AO's rejection of the DVO's valuation report, which corroborated the declared value, was not justified. The AO relied on assumptions and uncorroborated third-party material, which did not meet the evidentiary standard required under Section 69B. Key Evidence and Findings: The DVO's report estimated the land value at Rs. 1,29,00,000/-, consistent with the declared value by the assessee. The AO's basis for addition was an undated, unsigned loose sheet found at a third party's premises, which was neither incriminating nor related to the assessee's transaction. Application of Law to Facts: The Tribunal applied the principle that additions under Section 69B require credible evidence of unexplained investment. The AO failed to discharge this burden, relying on speculative and unrelated documents. Treatment of Competing Arguments: The Revenue argued that the market value was higher and the cash payment unexplained, but the Tribunal found these arguments unsubstantiated due to lack of direct evidence and corroboration. Conclusions: The addition under Section 69B was held to be unsustainable and rightly deleted. Significant Holdings "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 the course of search under Section 132 or requisition under Section 132A of the Act, 1961." "Documents found during search from the possession of third person cannot be used in the proceeding u/s 153A of the Income Tax Act and such documents, if at all relevant, should be considered in proceedings u/s 153C." "The assumption of jurisdiction U/s 153A and subsequently the addition made by the AO is found to be unsustainable, hence it is held that the proceedings initiated U/s 153A was invalid and thus the addition made by the AO is deleted." "Apart from rough noting, there is no other evidence like MOU, cash receipt etc. pertaining to the appellant to substantiate the unaccounted investment by the appellant. Thus, there is no corroborative or direct evidence to presume that the appellant made unaccounted investment." "The ground taken by the AO for rejection of DVO valuation report is also not appears correct as the AO has mentioned that DVO has applied scientific method of construction and estimated rates of construction. However, this ground for rejecting the report of DVO is contrary to facts as valuation is with regard to fair market value of the land and is not related to construction." The Tribunal's final determination was to dismiss the Revenue's appeal and uphold the CIT(A)'s order deleting the addition made under Section 69B on account of unexplained cash payment, holding the proceedings under Section 153A invalid due to absence of incriminating material related to the assessment year and the assessee.
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