2016 (7) TMI 911 - HC - Income Tax

Section 153A: Additions/Disallowances must be based on incriminating material discovered during search; absent material, earlier assessment reiterated

Pr. Commissioner of Income Tax-4 Versus Saumya Construction Pvt. Ltd.

HC held that under section 153A additions/disallowances must be based on incriminating material discovered during the search or requisition; where no such ... Addition u/s 153A - requisition under section 132A - requirement of section 153A to assess the total income in contradistinction to undisclosed income - powers of search and seizure - incriminating material found during the course of search operations - failed to appreciate that the new procedure is different from the earlier procedure under section 158BC read with section 158BB - Held that:- In the opinion of this court, in a case like the present one, where an assessment has been framed earlier and no assessment or reassessment was pending on the date of initiation of search under section 132 or making of requisition under section 132A, while computing the total income of the assessee under section 153A of the Act, additions or disallowances can be made only on the basis of the incriminating material found during the search or requisition. In the present case, it is an admitted position that no incriminating material was found during the course of search, however, it is on the basis of some material collected by the Assessing Officer much subsequent to the search, that the impugned additions came to be made. Under section 153A of the Act, an assessment has to be made in relation to the search or requisition, namely, in relation to material disclosed during the search or requisition. If in relation to any assessment year, no incriminating material is found, no addition or disallowance can be made in relation to that assessment year in exercise of powers under section 153A of the Act and the earlier assessment shall have to be reiterated. As rightly pointed out by the learned counsel for the respondent, the controversy involved in the present case stands concluded by the decision of this court in the case of Commissioner of Income-tax-1 v. Jayaben Ratilal Sorathia [2013 (7) TMI 850 - GUJARAT HIGH COURT], wherein it has been held that while it cannot be disputed that considering section 153A of the Act, the Assessing Officer can reopen and/or assess the return with respect to six preceding years; however, there must be some incriminating material available with the Assessing Officer with respect to the sale transactions in the particular assessment year. - Decided in favour of assessee. Issues Involved:1. Legality of the Tribunal's order in deleting the addition made under section 153A of the Income Tax Act, 1961.2. Interpretation of section 153A concerning the requirement of incriminating material found during the course of search.3. Reliance on precedents and interpretation of undisclosed income in the context of section 153A assessments.Detailed Analysis:Issue 1: Legality of the Tribunal's Order in Deleting the Addition Made under Section 153AThe appellant (revenue) challenged the Tribunal's order which deleted the addition of Rs. 11,05,51,000 made by the Assessing Officer (AO) under section 153A of the Income Tax Act, 1961. The AO had added this amount as unexplained investment based on a sale deed and statement from another individual admitting receipt of on-money. The Tribunal, however, held that the addition was not based on any incriminating material found during the search operations on the assessee, thus such addition could not be made under section 153A.Issue 2: Interpretation of Section 153A Concerning the Requirement of Incriminating Material Found During the Course of SearchThe appellant argued that section 153A does not stipulate that additions should be based strictly on incriminating material found during the search. They contended that the AO is mandated to assess the total income for six years preceding the search, including disclosed and undisclosed income, without the necessity of incriminating material for each year.The respondent (assessee) countered by citing the jurisdictional High Court's decision in Commissioner of Income-tax-1 v. Jayaben Ratilal Sorathia, which held that the AO must have some incriminating material related to the specific assessment year to make additions under section 153A.The court referred to various precedents, including the Delhi High Court's decision in Commissioner of Income Tax v. Anil Kumar Bhatia, which clarified that section 153A empowers the AO to assess or reassess the total income of six assessment years, including any undisclosed income unearthed during the search. However, the Rajasthan High Court in Jai Steel (India), Jodhpur v. Assistant Commissioner of Income Tax emphasized that in the absence of incriminating material, the completed assessment should be reiterated.Issue 3: Reliance on Precedents and Interpretation of Undisclosed Income in the Context of Section 153A AssessmentsThe court analyzed the precedents, including the Delhi High Court's decision in Filatex India Ltd. v. Commissioner of Income Tax-IV, which held that additions need not be restricted to incriminating material found during the search. However, the court also considered the Rajasthan High Court's view in Jai Steel (India), which stated that section 153A assessments should be based on incriminating material found during the search.The court concluded that while section 153A mandates the AO to issue notice for assessment for six years preceding the search, any addition or disallowance must be based on incriminating material found during the search. In the present case, since no incriminating material was found during the search for the assessment year in question, the Tribunal's order to delete the addition was upheld.Conclusion:The court dismissed the appeal, holding that the Tribunal's order did not suffer from any legal infirmity. It reiterated that under section 153A, additions or disallowances can only be made based on incriminating material found during the search, and in the absence of such material, the earlier assessment should be reiterated.