2025 (7) TMI 1100 - AT - Income Tax

Assessment u/s 153A - incriminating material seized which resulted in the addition/disallowance - Allowability of exemption claimed u/s 54F - HELD THAT - In the present case the Assessment Year 2015-16 were non-abated assessment on the date of search i.e. 22/10/2016 u/s 132(1) of the Act since no assessment pending on the date of search. As per the second proviso to Section 153A of the Act the assessment made prior to search had not abated therefore the disallowance made by the A.O. u/s 54 F of the Act is beyond the scope of the assessment framed u/s 153A/143(3) of the Act. As observed earlier the A.O. has not referred any of the documents found during the course of search while making the impugned disallowance and by relying on the documents procured during the assessment and the statements recorded during the course of search the A.O. framed the assessment. Since the disallowance made u/s 54F of the Act is dehors any incriminating material found during the course of search by applying the well settled principal of law laid down in the case of Abhisar Buildwell 2023 (4) TMI 1056 - SUPREME COURT we find merit in the contentions raised by the Assessee under Rule 27 of the Income Tax Appellate Tribunal Rules 1963. Thus we are of the opinion that the addition made by the A.O. is beyond jurisdiction and cannot sustain in the eyes of law accordingly the additions are deserves to be deleted. Additions made by the A.O. are without jurisdiction - Assessee appeal allowed.

Summary

ISSUES:

Whether the Assessing Officer (AO) has jurisdiction under Section 153A of the Income Tax Act, 1961 to disallow exemption claimed under Section 54F in completed assessments without incriminating material found during search.Whether disallowance of exemption under Section 54F can be sustained when the investment claimed relates to property held in capacity of director/shareholder or partner in converted LLPs.Whether conversion of companies owning property into LLPs violates Section 47(xiiib)(f) of the Income Tax Act, 1961, affecting exemption claims under Section 54F.Whether additions made by the AO without reference to incriminating material seized during search can be upheld.Whether an assessee can invoke additional legal grounds not adjudicated by the Commissioner of Income Tax (Appeals) (CIT(A)) before the Income Tax Appellate Tribunal (ITAT) under Rule 27 of the ITAT Rules, 1963.

RULINGS / HOLDINGS:

The AO does not have jurisdiction under Section 153A to make additions in respect of completed/unabated assessments without incriminating material found during the search; disallowance of exemption under Section 54F in such circumstances is "beyond jurisdiction" and unsustainable.The CIT(A) correctly allowed exemption under Section 54F on merits, finding all requirements fulfilled, despite the AO's contrary findings regarding the nature of property holding and investment.The contention that conversion of companies into LLPs violated Section 47(xiiib)(f) was not upheld; no adverse finding was made affecting the exemption under Section 54F on this ground.Additions made by the AO "dehors the incriminating material found during the course of search" cannot be sustained, as held by the Supreme Court and various High Courts.Under Rule 27 of the ITAT Rules, 1963, an assessee can support the order appealed against on any grounds decided against him by the CIT(A), even if not appealed, and the Tribunal may permit raising additional legal grounds not adjudicated by the CIT(A).

RATIONALE:

The Court applied the statutory framework of Section 153A of the Income Tax Act, 1961, which confers jurisdiction on the AO to assess or reassess total income for six assessment years following a search under Section 132, but only if incriminating material is found during the search relating to those years.The second proviso to Section 153A preserves completed/unabated assessments from abatement, limiting the AO's jurisdiction to reassess such years only when incriminating material is discovered during the search.Judicial precedents from the jurisdictional High Court and the Supreme Court, including the principles laid down in CIT v. Kabul Chawla and Pr. CIT v. Meeta Gutgutia, were followed, affirming that additions in completed assessments without incriminating material found during search are impermissible under Section 153A.The Supreme Court's decision in Pr. CIT(A) v. Abhisar Buildwell (P) Ltd. was pivotal, emphasizing that Section 153A is linked to the search and cannot be used to reopen completed assessments absent incriminating material; otherwise, reassessment under Sections 147/148 is the appropriate remedy.The Tribunal recognized the principle that the CIT(A) need not adjudicate all legal grounds if the appeal is decided on merits, and under Rule 27 of the ITAT Rules, the assessee may raise unadjudicated grounds before the Tribunal to support the order appealed against.The Court rejected reliance solely on statements recorded during search without corroborative evidence, consistent with CBDT instructions that additions cannot be based solely on such statements.