AO cannot pass assessment orders under Section 143(3) instead of Section 153C after search operations without incriminating material

ITAT Jabalpur held that AO was not justified in passing assessment orders u/s 143(3) instead of u/s 153C following search operations. The tribunal ruled such assessment orders invalid and bad in law, relying on SC decision in Pr. CIT v. Abhisar Buildwell P. Ltd. The SC established that no additions can be made in completed assessments absent incriminating material found during search u/s 132 or requisition u/s 132A. The tribunal answered both questions in favor of the assessee, invalidating the assessment orders.

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Issues Involved:
1. Jurisdiction of assessment under Section 143(3) versus Section 153C.
2. Validity of assessment orders under Section 143(3).
3. Justification of additions under Section 68.
4. Binding nature of decisions from the jurisdictional High Court on ITAT.

Summary:

Issue 1: Jurisdiction of Assessment under Section 143(3) versus Section 153C
The Tribunal examined whether the Assessing Officer (AO) was justified in passing assessment orders under Section 143(3) instead of Section 153C of the Income Tax Act, 1961. The assessee argued that the assessment proceedings under Section 143(3) were illegal due to the abatement provisions in Sections 153A and 153C, which mandate that pending assessments abate and fresh assessments are to be initiated under Section 153C when incriminating material is found during a search. The Tribunal noted that the search was conducted after the issuance of the notice under Section 143(2), and the documents seized were handed over to the AO. The Tribunal concluded that the AO should have initiated proceedings under Section 153C, as the pending assessment under Section 143(3) abated automatically due to the search.

Issue 2: Validity of Assessment Orders under Section 143(3)
The Tribunal held that the assessment orders passed under Section 143(3) were invalid and bad in law. The Tribunal relied on the Supreme Court's decision in "Pr. CIT Vs Abhisar Buildwell P. Ltd.," which established that in the case of a search, the AO must issue a notice under Section 153A and assess or reassess the total income for the relevant years. The Tribunal found that the AO's failure to initiate proceedings under Section 153C, despite the abatement of the pending assessment under Section 143(3), rendered the assessment orders invalid.

Issue 3: Justification of Additions under Section 68
The Tribunal did not specifically address the merits of the additions made under Section 68, as the primary focus was on the jurisdictional issue. The Tribunal noted that the issue of incriminating material becomes relevant only in the case of unabated or completed assessments, and since the proceedings under Section 143(3) abated due to the search, the AO should have proceeded under Section 153C.

Issue 4: Binding Nature of Decisions from Jurisdictional High Court on ITAT
The Tribunal did not specifically address this issue, as the primary focus was on the jurisdictional issue and the validity of the assessment orders.

Conclusion:
The Tribunal concluded that the AO was not justified in passing the assessment orders under Section 143(3) and that the assessment orders were invalid and bad in law. The Tribunal agreed with the view taken by the Judicial Member and held that the AO should have initiated proceedings under Section 153C following the search. Consequently, the Tribunal rendered the other issues infructuous and ordered that the appeals be placed before the regular Division Bench for passing necessary orders giving effect to this order.

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