2025 (7) TMI 1287 - AT - Income Tax

Assessment u/s 153A - Addition on account of bogus Long Term Capital Gain claimed by the assessee AND Addition on account of commission expenses for obtaining accommodation entry @ 5% of Sale consideration - assessee contended that the addition made while making the assessment has no reference to any incriminating material unearthed while search and seizure action on the appellant and therefore the addition has been made without the basis / source of incriminating material unearthed from the search action - HELD THAT - As relying on Abhisar Buildwell (P.) Ltd 2023 (5) TMI 587 - SUPREME COURT in the proceeding u/s. 153A of the Act in case no incriminating material is unearthed the AO cannot assessee or reassess taking into consideration the other material in respect of completed / unabated assessments no addition can be made by the AO in absence of any incriminating material found during the search and thus considering that set of facts and following the judicial precedence we do not find any infirmity in the finding of the ld. CIT(A) in directing the ld. AO to delete the addition made by the Assessing Officer disallowing the exemption of Long-Term Capital Gains on account of unexplained credits u/s 68 of the Act based on these observations ground no. 1 raised by the revenue is dismissed. CIT(A) further directed the ld. AO to initiate appropriate proceedings under Section 147/148 of the Act relying on the same judgment of Abhisar Buildwell (supra) CBDT Instruction No. 1/2023 (CLC 35-40) and the provisions of Section 150 of the Act - What is not permitted directly cannot be permitted indirectly and therefore the ld. CIT(A) cannot broaden the scope of the appeal decision to advise or compel another round of litigation again and again and as held by the apex court that we have to bear in mind that the policy of law is that there must be a point of finality in all legal proceedings that stale issues should not be reactivated beyond a particular stage. Thus looking to the provision of the law decided case and facts of the present case we are of the considered view that ld. CIT(A) was tasked with deciding whether the addition under Section 153A was sustainable given the specific facts and circumstance of the case. Ld. CIT(A) rightfully found it was not (for want of incriminating material) and deleted it. At that point ld. CIT(A) s authority ended. Ld. CIT(A) should have simply allowed the appeal on that issue. By proceeding to direct the AO to consider re-opening under Section 147 the ld. CIT(A) acted ultra vires and thereby we allow the cross objection of the assessee.

Summary

ISSUES:

Whether additions made under section 153A of the Income Tax Act, 1961, without incriminating material unearthed during search and seizure, are sustainable.Whether the Commissioner of Income Tax (Appeals) has jurisdiction to direct the Assessing Officer to initiate reassessment proceedings under sections 147/148 read with section 150 of the Income Tax Act.Whether CBDT Instruction No. 1/2023 dated 23.08.2023 is binding on appellate authorities such as the Commissioner of Income Tax (Appeals).Scope and interpretation of section 150 regarding issuance of notice under section 148 in consequence of findings or directions in appellate or judicial orders.Whether reassessment proceedings can be initiated in absence of incriminating material found during search, and the conditions for such reassessment.Whether appellate authorities can exceed their powers under sections 250/251 by issuing directions beyond confirming, reducing, enhancing, or annulling assessments.

RULINGS / HOLDINGS:

The additions made under section 153A without any incriminating material unearthed during search and seizure are not sustainable; the Assessing Officer cannot assess or reassess completed/unabated assessments on the basis of other material alone.

The Commissioner of Income Tax (Appeals) exceeded jurisdiction under sections 250/251 by directing the Assessing Officer to initiate reassessment proceedings under sections 147/148, which is beyond appellate powers limited to confirming, reducing, enhancing, or annulling assessments.

CBDT Instruction No. 1/2023 is an internal administrative guideline not binding on quasi-judicial authorities like the Commissioner of Income Tax (Appeals) and cannot expand or override statutory provisions.

Section 150(1) allows issuance of notice under section 148 notwithstanding limitation under section 149 only "for the purpose of making an assessment or reassessment or recomputation in consequence of or to give effect to any finding or direction contained in an order passed by any authority… by way of appeal, reference or revision or by a Court."

Reassessment in absence of incriminating material found during search is permissible only by the Assessing Officer independently satisfying the statutory conditions under sections 147/148 and subject to limitation under section 149; appellate authorities have no power to direct such reassessment.

Observations or general remarks by the Supreme Court do not constitute "findings" or "directions" under section 150(1) that can mandate reassessment; such findings must be specific, clear, and mandatory.

RATIONALE:

The Court applied the legal framework established by the Supreme Court in PCIT v. Abhisar Buildwell Pvt. Ltd. and DCIT v. U.K. Paints (Overseas) Ltd., which clarified that under section 153A, additions can only be made if incriminating material is found during search; otherwise, completed assessments cannot be reopened without following reassessment procedure under sections 147/148.Section 153A assessment jurisdiction is linked to search under sections 132/132A; completed assessments remain final unless incriminating material is discovered that justifies reassessment.Section 150 provides a limited exception to limitation under section 149 for reassessment notices issued consequential to appellate or judicial findings or directions; however, this does not empower appellate authorities to direct reassessment initiation.The Court relied on statutory interpretation and precedent, including the Supreme Court's decision in ITO v. Murlidhar Bhagwan Das, to hold that appellate authorities cannot issue directions beyond their appellate jurisdiction, particularly cannot direct reopening of assessments.The Court emphasized the principle of finality in tax proceedings and statutory safeguards against reopening assessments without proper jurisdiction and compliance with procedural requirements.The Court held that CBDT instructions are administrative and cannot override statutory provisions or judicial pronouncements binding on quasi-judicial authorities.The Court noted dismissal of Revenue's miscellaneous application for clarification/review by the Supreme Court, reinforcing that reassessment powers are subject to strict statutory conditions and cannot be expanded by administrative instructions or appellate directions.