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2025 (6) TMI 413 - HC - Income TaxAssessment u/s 153A - incriminating material found during the search or not? - HELD THAT - Concededly there was no material found during the search and seizure operations conducted u/s 132 of the Act which could be termed as incriminating. The question whether in such circumstances addition could be made is no longer res intergra. The said issue is covered by the decision of this Court in RRJ Securities Limited and Kabul Chawla 2015 (11) TMI 19 - DELHI HIGH COURT upheld by the Supreme Court in Abhisar Buildwell (P.) Ltd. 2023 (4) TMI 1056 - SUPREME COURT In Saksham Commodities Limited 2024 (4) TMI 461 - DELHI HIGH COURT this Court also considered the difference in assumption of jurisdiction u/s 153A of the Act and Section 153C of the Act. In cases covered u/s 153A of the Act the AO is required to reiterate the earlier assessment in the absence of any incriminating material.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Court were:
2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Jurisdiction of AO under Section 153A in absence of incriminating material Relevant legal framework and precedents: The Court examined Section 153A of the Income Tax Act, which empowers the AO to reassess income where a search or seizure under Section 132 has taken place. However, the jurisdiction is triggered only if incriminating material is found during the search. The Court relied heavily on the precedent set in Commissioner of Income Tax (Central)-III v. Kabul Chawla, a decision of this Court affirmed by the Supreme Court in Principal Commissioner of Income-tax, Central-3 v. Abhisar Buildwell (P.) Ltd., which held that jurisdiction under Section 153A cannot be assumed without incriminating material. Court's interpretation and reasoning: The Court reiterated that the assumption of jurisdiction under Section 153A is contingent upon the discovery of incriminating material during the search. The mere fact of a search operation does not automatically confer jurisdiction to reassess if no incriminating evidence is found. The Court emphasized that this principle was consistently upheld in subsequent decisions including Saksham Commodities Limited v. Income Tax Officer Ward 22(1), Delhi & Anr., where the distinction between Sections 153A and 153C was also clarified. Key evidence and findings: It was undisputed that the search and seizure operation under Section 132 was conducted on 25.04.2014, and no incriminating material was found in the assessee's case. The assessment order dated 30.12.2016 was based on entries in the books of accounts and unexplained investments, but these were not supported by any incriminating evidence obtained during the search. Application of law to facts: Applying the settled legal position, the Court found that the AO lacked jurisdiction to reassess under Section 153A in the absence of incriminating material. The assessment order premised solely on the books of accounts without incriminating material was held to be invalid. Treatment of competing arguments: The Revenue contended that the AO had jurisdiction and the additions were justified. However, the Court rejected this on the basis that the jurisdictional precondition of incriminating material was not met. The Tribunal's reliance on the binding precedent was upheld. Conclusions: The Court concluded that the AO's jurisdiction under Section 153A was not validly assumed and the assessment order was accordingly unsustainable. Issue 2: Validity of assessment order under Section 153A read with Section 143(3) without incriminating material Relevant legal framework and precedents: Section 143(3) empowers the AO to make a detailed assessment, but when coupled with Section 153A, it is conditional upon the search yielding incriminating material. The Court referred to the CIT(A)'s and Tribunal's decisions, as well as the Supreme Court's ruling in Abhisar Buildwell, which clarified that assessments under Section 153A must be based on incriminating material found during search. Court's interpretation and reasoning: The Court noted that while the CIT(A) had rejected the assessee's argument on jurisdiction, he deleted the additions on merits. The Tribunal allowed the assessee's application under Rule 27 to challenge the jurisdictional validity, ultimately rejecting the Revenue's appeal. The Court endorsed this approach, emphasizing that the absence of incriminating material vitiates the assessment. Key evidence and findings: The assessment order included additions for unexplained investments in unquoted shares, but these were not supported by any incriminating evidence from the search. The search authorization existed, but no incriminating documents or materials were found. Application of law to facts: The Court applied the principle that assessments under Section 153A must be predicated on incriminating material discovered during search. Since no such material was found, the additions and the assessment order were invalid. Treatment of competing arguments: The Revenue's argument that the assessment was valid despite absence of incriminating material was rejected. The Court held that the law does not permit assumption of jurisdiction or additions without such material. Conclusions: The assessment order passed under Section 153A read with Section 143(3) was invalid and unsustainable in law. Issue 3: Distinction between Sections 153A and 153C in assumption of jurisdiction Relevant legal framework and precedents: Section 153A deals with assessments where a search has been conducted in the assessee's case, while Section 153C applies when search is conducted in the case of another person but documents relating to the assessee are found. The Court referred to Saksham Commodities Limited v. Income Tax Officer Ward 22(1), Delhi & Anr., which clarified the difference in jurisdictional scope and procedural requirements between these sections. Court's interpretation and reasoning: The Court reiterated that under Section 153A, in the absence of incriminating material, the AO can only reiterate the original assessment and cannot make fresh additions. This is distinct from Section 153C where the AO can make fresh assessments based on incriminating material found in the searched person's case. Key evidence and findings: The Court noted that the present case fell under Section 153A and no incriminating material was found, thus limiting the AO's jurisdiction. Application of law to facts: The Court applied the distinction to confirm that the AO's jurisdiction under Section 153A was not triggered absent incriminating material, unlike Section 153C cases. Treatment of competing arguments: The Revenue did not dispute the factual matrix but argued for broader jurisdiction. The Court rejected this, adhering to the statutory scheme and judicial precedents. Conclusions: The Court affirmed the principle that Section 153A jurisdiction is contingent on incriminating material, unlike Section 153C. 3. SIGNIFICANT HOLDINGS The Court held:
Core principles established include:
Final determinations:
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