Section 153A additions need incriminating material, while sanctioned amalgamation schemes can support depreciation and loss carry forward.

For completed assessments not pending on the search date, additions under section 153A can survive only if supported by incriminating material found during the search; because no such material was shown, the additions for the non-abated years were deleted. Depreciation on assets transferred under an approved amalgamation scheme remained allowable as part of the assessee's block of assets, since the block concept preserves depreciation on vested assets even if the old unit was closed. The assessee was also entitled to carry forward and set off the amalgamating company's losses and unabsorbed depreciation under the sanctioned BIFR scheme and section 72A, with the special scheme prevailing over inconsistent general limitations.

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Issues: (i) Whether additions made in section 153A proceedings for completed assessments not pending on the date of search could survive in the absence of incriminating material; (ii) Whether depreciation on the assets of the amalgamating company was allowable in the hands of the assessee after amalgamation and as part of the block of assets; (iii) Whether the assessee was entitled to carry forward and set off brought forward losses and unabsorbed depreciation of the amalgamating company in terms of the BIFR sanctioned scheme and section 72A.

Issue (i): Whether additions made in section 153A proceedings for completed assessments not pending on the date of search could survive in the absence of incriminating material.

Analysis: The search took place after several years had already attained finality by scrutiny assessment or had become non-pending. For such years, additions under section 153A could be made only on the basis of incriminating material unearthed during the search. The BIFR order and the alleged non-functioning of the amalgamating unit were not treated as incriminating material, since the BIFR order was already within the Revenue's knowledge and no new search-based material was shown. The completed assessments could therefore not be disturbed for those years.

Conclusion: The additions for the non-abated years were unsustainable and were deleted.

Issue (ii): Whether depreciation on the assets of the amalgamating company was allowable in the hands of the assessee after amalgamation and as part of the block of assets.

Analysis: After the amendment introducing the block of assets concept, depreciation is allowed on the block as such and individual assets lose separate identity for depreciation purposes. Once the assets of the amalgamating company vested in the assessee by operation of the sanctioned scheme, they formed part of the assessee's block of assets. The fact that the unit had remained closed or non-functional did not justify segregation of those assets from the block for denial of depreciation.

Conclusion: Depreciation on the amalgamated assets was allowable and the assessee succeeded on this issue.

Issue (iii): Whether the assessee was entitled to carry forward and set off brought forward losses and unabsorbed depreciation of the amalgamating company in terms of the BIFR sanctioned scheme and section 72A.

Analysis: The sanctioned rehabilitation scheme under SICA had overriding effect, and the department had participated in the BIFR proceedings. The scheme specifically contemplated carry forward and set off of accumulated losses, including lapsed losses, and unabsorbed depreciation. Section 72A governed amalgamation losses, and the statutory limitation under section 72 could not defeat the special scheme. The Revenue's reliance on the absence of a separate CBDT consent was rejected in view of the BIFR order, AAIFR dismissal, and the binding circular governing implementation of such schemes.

Conclusion: The assessee was entitled to the claimed loss and depreciation benefits, subject to availability, and the disallowance was deleted.

Final Conclusion: The appeals were allowed to the extent of deleting additions in non-abated years and granting depreciation and loss-related relief on the amalgamation claims, while the remaining grounds were either consequential, academic, or not pressed.

Ratio Decidendi: In respect of completed assessments not pending on the date of search, additions under section 153A can be sustained only on the basis of incriminating material found during the search, and a sanctioned BIFR scheme with overriding effect can govern amalgamation-related depreciation and loss carry forward in preference to inconsistent general limitations under the Income-tax Act.

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