2025 (5) TMI 434 - AT - Income Tax

Assessment u/s 153A in the case of unabated / completed year(s) - unexplained cash deposits in the bank accounts - meaning of other material - Diversified opinion of members of bench - matter refered to third member HELD THAT - The assumption of jurisdiction u/s 153A of the Act being automatic consequent to search and seizure action u/s 132 of the Act the assessments are completed based on the entire material before the Assessing Officer in the case of abated assessment. The moment action u/s 132 takes place all the assessments pending as on the date shall abate. The interplay between Sections 153A 153C 147 undisclosed income total income abatement unabated assessments incriminating material other material has to be treaded with utmost diligence and crucial in understanding how the principle against multiple assessments is upheld in the context of search and reassessment proceedings. One potential scenario for multiple assessments could arise if the Assessing Officer initiates proceedings u/s 147 for assessment years that are already covered under the block period of Section 153A particularly based on the other material and facts emanated from the search proceedings during the assessment u/s 153A of the Act. Judicial pronouncements have aimed to clarify that once an assessment is made under Section 153A for a particular assessment year within the block period the scope for reopening that assessment under Section 147 is limited. In accordance with the majority opinion comprising the opinion of the Hon ble Accountant Member and the Hon ble Third Member the appeals as decided Hon ble AM All the additions which were based on incriminating material as well as on the basis of other materials as available with the AO are required to be set-aside to the file of Ld. CIT(A) to examine the matter on their merit . Hon ble Vice President (Third Member) I agree with the Hon ble AM that there is no legal impediment in making an addition the basis of other material found during search in an assessment u/s 153A for a year whose assessment was not pending on the date of search. For assessment years where some incriminating materials have been found to exist as per the findings of ITAT the matter is hereby being restored to the file of Ld. CIT(A) for deciding the grounds taken by the assessee on merits. In the combined result all the appeals filed by the Department and assessee are partly allowed for statistical purposes.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal question referred for determination arises from a difference of opinion between the Judicial and Accountant Members of the Tribunal regarding the scope and ambit of assessment proceedings under Section 153A of the Income Tax Act, 1961 ("the Act") in respect of unabated or completed assessment years. Specifically, the question is:

"Whether in the facts and circumstances of the case, the assessment under Section 153A of the Act in the case of unabated/completed year(s) is to be completed only on the basis of incriminating material found during the search, or, once some incriminating materials are found during the course of search, the Assessing Officer (AO) is empowered to also take into account any 'other material' which may be available with the AO and/or information as available from the return of income as well; keeping in view the ratio of the decision of the Hon'ble Supreme Court in the case of PCIT v. Abhisar Buildwell (P.) Ltd.?"

This issue broadly encompasses the following subsidiary questions:

• Whether additions under Section 153A for unabated/completed assessments can be made only on the basis of incriminating material seized during the search or whether the AO can also rely on other material available with him including declared income and information from returns.
• The legal effect of the Supreme Court's ruling in Abhisar Buildwell (P.) Ltd. on the interpretation of Section 153A, especially regarding the scope of assessment in unabated years.
• The applicability of judicial precedents which restrict additions in unabated/completed assessments to incriminating material found during search.
• The treatment of additions made on the basis of material not seized during the search but available from other sources.
• The scope of assessment proceedings under Section 153A vis-`a-vis the abatement of pending assessments and the possibility of parallel proceedings.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Scope of Additions under Section 153A for Unabated/Completed Assessment Years

Relevant Legal Framework and Precedents:

Section 153A of the Act empowers the AO to assess or reassess the total income of six assessment years preceding the year in which a search under Section 132 or requisition under Section 132A is conducted. The second proviso to Section 153A provides that any pending assessment or reassessment proceedings for those years shall abate. The key legal question is whether, for unabated or completed assessments, additions can be made only on the basis of incriminating material found during the search or whether the AO can also rely on other materials available with him.

Prior to the Supreme Court decision in Abhisar Buildwell, various High Courts, including the Gujarat High Court in Saumya Construction and the Delhi High Court in Kabul Chawla, had held that no additions can be made in respect of completed/unabated assessments in the absence of incriminating material found during the search. Contrarily, the Allahabad High Court in Mehndipur Balaji had taken a different view.

Court's Interpretation and Reasoning:

The Judicial Member initially held that for unabated/completed years, additions under Section 153A must be strictly confined to incriminating material found during the search. This view was supported by a host of judicial precedents and rested on the principle that the assessment under Section 153A is linked to the search and the incriminating material found therein. Additions based solely on other material such as ITS data, audited accounts, or information from returns, without any incriminating documents seized, are not sustainable in law for unabated years.

The Accountant Member and the Third Member, however, after analyzing the Supreme Court's decision in Abhisar Buildwell, took a contrary view. They emphasized that the Supreme Court clarified that once incriminating material is found during the search in respect of an unabated/completed assessment year, the AO assumes jurisdiction to assess or reassess the total income for that year taking into consideration not only the incriminating material but also other material available with the AO, including income declared in the returns. This interpretation harmonizes the provisions of Section 153A and avoids multiplicity of proceedings.

Key Evidence and Findings:

The search and seizure operation unearthed extensive incriminating material, including Excel sheets, diaries, affidavits, and statements revealing a modus operandi of providing bogus accommodation entries and bogus bills for commission income. The AO relied on these materials to make additions for various years.

The Judicial Member noted that the CIT(A) had deleted additions for unabated years on the ground that they were not based on incriminating material found during the search, relying on judicial precedents. However, the CIT(A) did not discuss why the substantial material found during search did not qualify as incriminating material. Moreover, the CIT(A) took contradictory views by sustaining some additions for the same facts in other years.

The Accountant Member and Third Member found that the incriminating material was indeed found and that the AO was entitled to consider other material along with the incriminating material for completing the assessment under Section 153A for unabated years.

Application of Law to Facts:

For abated assessment years, the AO is not restricted to incriminating material alone and can conduct necessary inquiries and make additions based on other materials as well. For unabated/completed assessment years, the AO's jurisdiction to assess total income under Section 153A arises only if incriminating material is found during the search. Once jurisdiction is assumed, the AO can consider other material available with him, including declared income and information from returns, to complete the assessment. If no incriminating material is found, the AO cannot make additions based on other material in unabated years, but may initiate separate proceedings under Sections 147/148.

Treatment of Competing Arguments:

The Judicial Member relied heavily on pre-Abhisar Buildwell High Court decisions restricting additions in unabated years to incriminating material found during search. The Department argued that the Supreme Court in Abhisar Buildwell expanded the AO's scope to include other material once incriminating material is found.

The Accountant Member and Third Member accepted the Department's argument, emphasizing the binding nature of the Supreme Court's decision and the need to interpret Section 153A harmoniously to avoid parallel proceedings.

Conclusions:

The majority view, following the Supreme Court's decision in Abhisar Buildwell, holds that in unabated/completed assessment years, once incriminating material is found during the search, the AO has jurisdiction to assess or reassess total income by considering both the incriminating material and other material available with him, including income declared in returns. If no incriminating material is found, additions cannot be made in unabated years based on other material alone; separate proceedings under Sections 147/148 are required.

Issue 2: Validity of Additions Based on Material Not Seized During Search

Relevant Legal Framework and Precedents:

Section 153A is triggered by search or requisition under Sections 132 or 132A. Additions must be linked to undisclosed income found during search. Judicial precedents have held that additions based on information received post-search or material not seized during search cannot be made under Section 153A.

Court's Interpretation and Reasoning:

The Judicial Member held that additions made on the basis of material or information received after the search, which was not part of the incriminating material seized, cannot be sustained under Section 153A. Such additions fall outside the scope of search-based assessments and require separate proceedings.

The Accountant Member differed, interpreting the Supreme Court's ruling to allow consideration of 'other material' along with incriminating material for unabated years, thus permitting additions based on material not seized during search, provided incriminating material was found.

Key Evidence and Findings:

In the case at hand, certain additions were made based on investigation reports and information received after the date of search. The Judicial Member found these additions unsustainable under Section 153A as they were not based on incriminating material found during search.

Application of Law to Facts:

Additions based solely on post-search information or material not seized during search are not permissible under Section 153A. They require independent proceedings under Sections 147/148.

Treatment of Competing Arguments:

The Department argued that such material forms part of 'other material' as per Abhisar Buildwell. The Judicial Member disagreed, emphasizing the temporal and procedural limits of Section 153A assessments.

Conclusions:

Additions based on material not seized during search and received post-search cannot be made under Section 153A. The AO must initiate separate reassessment proceedings for such material.

Issue 3: Treatment of Abated vs. Unabated Assessment Years

Relevant Legal Framework and Precedents:

Section 153A provides for abatement of pending assessments on the date of search. For abated assessments, the AO assumes jurisdiction afresh and can make additions on the basis of incriminating material and other material. For unabated assessments (completed assessments or where time for assessment has expired), additions can only be made if incriminating material is found during search.

Court's Interpretation and Reasoning:

The Judicial Member followed the principle that for unabated years, additions must be confined to incriminating material found during search. The Accountant Member and Third Member emphasized that for abated years, the AO has wider powers to make additions based on incriminating and other material.

Key Evidence and Findings:

The facts revealed that some years under consideration were unabated (completed) and others abated (pending at time of search). The CIT(A) erred in applying the same legal principle to both categories, leading to contradictory orders.

Application of Law to Facts:

For abated years, the AO can make additions on incriminating and other material. For unabated years, additions are limited to incriminating material unless the AO initiates separate reassessment proceedings.

Treatment of Competing Arguments:

The Department argued for a uniform approach allowing consideration of other material once incriminating material is found, even for unabated years, relying on Abhisar Buildwell. The Judicial Member disagreed for unabated years, stressing the need for incriminating material as a precondition.

Conclusions:

The distinction between abated and unabated years is critical. The AO's powers under Section 153A are broader for abated years. For unabated years, additions must be based on incriminating material found during search, with other material considered only if incriminating material exists.

Issue 4: Interpretation of 'Incriminating Material' and 'Other Material'

Relevant Legal Framework and Precedents:

'Incriminating material' refers to evidence or documents seized or found during the search indicating undisclosed income. 'Other material' includes information available with the AO, such as income declared in returns, audited accounts, ITS data, and other relevant documents.

The Supreme Court in Abhisar Buildwell clarified that for unabated years, the AO can consider both incriminating and other material once jurisdiction is assumed by finding incriminating material.

Court's Interpretation and Reasoning:

The Judicial Member viewed 'incriminating material' as a sine qua non for additions in unabated years, rejecting additions based solely on other material. The Accountant Member and Third Member accepted that 'other material' can be considered along with incriminating material to assess total income.

Key Evidence and Findings:

Extensive incriminating material was found, including Excel sheets detailing accommodation entries, affidavits from involved parties, and seized documents. The AO also considered other data such as bank statements and declared income.

Application of Law to Facts:

Once incriminating material is found, the AO is entitled to consider other material to determine total income. However, in the absence of incriminating material, other material alone cannot justify additions in unabated years.

Treatment of Competing Arguments:

The Department argued for a broad interpretation of 'other material' to include all relevant information. The Judicial Member cautioned against unfettered powers leading to multiple assessments.

Conclusions:

The term 'other material' includes declared income and other relevant information available with the AO. Its use is contingent on the existence of incriminating material found during search in unabated years.

3. SIGNIFICANT HOLDINGS

"(iii) in case any incriminating material is found/unearthed, even, in case of unabated/completed assessments, the AO would assume the jurisdiction to assess or reassess the 'total income' taking into consideration the incriminating material unearthed during the search and the other material available with the AO including the income declared in the returns; and

(iv) 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. However, the completed/unabated assessments can be re-opened by the AO in exercise of powers under Sections 147/148 of the Act, subject to fulfilment of the conditions as envisaged/mentioned under sections 147/148 of the Act and those powers are saved."

The Court emphasized that "the assessment under Section 153A of the Act is linked with the search and requisition under Sections 132 and 132A of the Act. The object of Section 153A is to bring under tax the undisclosed income which is found during the course of search or pursuant to search or requisition."

The Court further held that the AO's jurisdiction to assess total income under Section 153A includes both incriminating material found during search and other material available with the AO, including declared income, but only if incriminating material is found. Otherwise, no additions can be made in unabated/completed assessments without incriminating material.

The Court clarified that the legislative intent behind Section 153A is to avoid parallel assessments and to ensure a single comprehensive assessment for the block period, thus harmonizing the provisions and avoiding multiplicity of proceedings.

Accordingly, all additions made on the basis of incriminating material as well as on the basis of other material available with the AO are to be examined on merits by the CIT(A). Additions not based on incriminating material in unabated years are not sustainable under Section 153A.