2018 (4) TMI 401 - HC - Income Tax

High Court affirms ITAT ruling: Incriminating material essential for Section 153A assessments

The High Court upheld the ITAT's decision to delete the sum as sale consideration and capital gains, finding that no incriminating material justified the ... Assessment u/s 153A - capital gain addition - Held that:- This Court was of the opinion that the decision in Commissioner of Income Tax v. Kabul Chawla [2015 (9) TMI 80 - DELHI HIGH COURT] concludes the issue as no incriminating material relating to the assessee was found. This Court further holds that the analysis of the ITAT in the circumstances, appears to be correct firstly for the reason that the previous assessments had adverted to the genuineness of the transactions vis-a-vis Nageshwar Investments in the course of a scrutiny assessment and that too when the assessee had suffered the additions. Secondly, the Appellate Commissioner and ITAT had granted relief against which the Revenue appealed to the High Court under Section 260A of the Act and that was rejected, in 2011 - Decided in favour of assessee. Issues:1. Validity of ITAT's direction to delete sum as sale consideration of M/s. Nageshwar Investment Ltd. and declared capital gains.2. Interpretation of Section 153A of the Income Tax Act, 1961 regarding abatement of assessments.3. Applicability of incriminating material requirement for assessment under Section 153A.4. Precedent set by the High Court in CIT vs. Kabul Chawla regarding Section 153A.5. Consideration of previous assessments and relief granted by Appellate Commissioner and ITAT.Analysis:1. The High Court considered the issue of the ITAT's direction to delete the sum as sale consideration of M/s. Nageshwar Investment Ltd. and declared capital gains. The AO had brought certain amounts to tax for the assessment years based on the belief that the capital gains from the sale of shares in M/s. Nageshwar Investments were bogus. However, the ITAT found that the sums brought to tax should be deleted. The Court agreed with the ITAT's findings, noting that no material was found during the search to justify the addition, and Section 153A does not authorize a de novo assessment when no incriminating material is available.2. Regarding the interpretation of Section 153A of the Income Tax Act, the Court analyzed the provisions and held that assessments can only abate if they are pending on the date of search initiation. Completed assessments do not abate, especially if they have been contested up to the High Court. The power to assess income for six years under the first proviso is limited to undisclosed income unearthed during the search and cannot include items disclosed in the original assessment proceedings.3. The Court discussed the requirement of incriminating material for assessment under Section 153A. It noted that the AO had not made any reference to incriminating material found during the search, and additions were made based on allegations without specific evidence pointing towards the assessee. The Court referenced the legal position summarized in the case of CIT vs. Kabul Chawla regarding the necessity of incriminating material for assessments under Section 153A.4. Referring to a previous judgment, the Court highlighted that no incriminating material related to the assessee was found, concluding that the decision in Commissioner of Income Tax vs. Kabul Chawla settles the issue. The Court agreed with the analysis of the ITAT, emphasizing that previous assessments had already examined the genuineness of transactions involving Nageshwar Investments, and relief had been granted against Revenue appeals.5. Considering the previous assessments and relief granted by the Appellate Commissioner and ITAT, the Court found in favor of the assessee, holding that the question of law framed was answered against the Revenue. The Court upheld the ITAT's decision to delete the sum as sale consideration and capital gains, based on the circumstances and legal interpretations discussed.