2023 (4) TMI 1291 - AT - Income Tax

Assessment u/s 153A - incriminating materials found in search or not? - additions made towards bogus purchases and u/s 40A(2)(a) - as argued these assessment years fall under the category of unabated assessment years and hence the AO could have made the addition in these two years only on the basis of incriminating materials if any found during the course of search - contention of the assessee is that assessments of AY 2012-13 and 2014-15 under consideration shall not abate since no assessment was pending as on the date of search - HELD THAT - As relying on ABHISAR BUILDWELL P. LTD. 2023 (4) TMI 1056 - SUPREME COURT and KABUL CHAWLA 2015 (9) TMI 80 - DELHI HIGH COURT we hold that the additions made towards allege bogus purchases and u/s 40A(2)(a) which are not based on any incriminating materials found during the course of search are liable to be deleted. Assessee appeal allowed.

Summary

Issues Involved:
1. Jurisdiction of the AO under Section 153A for unabated assessment years.
2. Validity of additions made without incriminating material found during the search.

Summary:

Issue 1: Jurisdiction of the AO under Section 153A for Unabated Assessment Years

The assessee contended that the assessment years 2012-13 and 2013-14 fall under the category of "unabated assessment years" and that the AO could make additions only based on incriminating materials found during the search. The search took place on 13.07.2017, and the assessments for these years were completed prior to the search. The additions made were related to alleged bogus purchases and disallowance under Section 37, which were not based on any incriminating material found during the search. The Tribunal relied on the jurisdictional Bombay High Court decisions in Continental Warehousing Corporation (Nhava Sheva) Ltd and Gurinder Singh Bawa, which held that in the absence of any incriminating material, the AO could not make additions for completed assessments.

Issue 2: Validity of Additions Made Without Incriminating Material Found During the Search

The Tribunal noted that the legal contentions of the assessee were supported by the Bombay High Court's decisions, which clarified that in the case of unabated assessments, the AO could only interfere if incriminating material was found during the search. The Tribunal cited the Special Bench's interpretation of Section 153A, which mandates that completed assessments shall not abate and can only be reassessed if undisclosed income is found during the search. The Tribunal also referred to the Delhi High Court's decision in Kabul Chawla, which summarized that completed assessments can only be interfered with based on incriminating material found during the search.

Conclusion:

Following the binding decisions of the Supreme Court and High Courts, the Tribunal held that the additions made towards alleged bogus purchases and under Section 40A(2)(a), not based on any incriminating materials found during the search, were liable to be deleted. The Tribunal set aside the orders of the CIT(A) for AY 2012-13 and 2013-14 and directed the AO to delete the additions made for these years. Consequently, the appeals of the assessee were allowed, and the appeals of the revenue were dismissed.

Result:

Both the appeals of the assessee are allowed, and both the appeals of the revenue are dismissed.