Section 153A additions need incriminating material; subsidy linked to capital investment is treated as a capital receipt.

In section 153A proceedings, an addition for alleged unverified software purchases could not be sustained where the same disallowance had already been deleted in the regular assessment and no incriminating search material was found. The article also notes that a sales tax subsidy under the Haryana incentive scheme was tested by the purpose test and treated as a capital receipt because it was intended to encourage capital investment. The same subsidy issue, repeated in section 153A without search material, was therefore not sustainable as a revenue addition. The governing principle is that repeated additions lacking incriminating material cannot stand, and subsidy character depends on its predominant purpose.

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Issues: (i) Whether, in proceedings under section 153A of the Income-tax Act, 1961, an addition for alleged unverified software purchases could be sustained where the same disallowance had already been deleted in the regular assessment appeal and no incriminating material was found in search. (ii) Whether the sales tax subsidy received by the assessee was capital in nature or revenue in nature, and whether the corresponding addition could be sustained in section 153A proceedings.

Issue (i): Whether, in proceedings under section 153A of the Income-tax Act, 1961, an addition for alleged unverified software purchases could be sustained where the same disallowance had already been deleted in the regular assessment appeal and no incriminating material was found in search.

Analysis: The disallowance related to software purchases had already been considered in the regular assessment proceedings, and the Tribunal had deleted the addition. In the section 153A proceedings, the Assessing Officer merely repeated the same addition for computation purposes. The record did not show any incriminating material found during search to support the disallowance. Where an item has already been deleted on merits in regular proceedings and the later section 153A addition is not founded on search material, the addition cannot be sustained.

Conclusion: The addition for alleged unverified software purchases was not sustainable and was directed to be deleted in favour of the assessee.

Issue (ii): Whether the sales tax subsidy received by the assessee was capital in nature or revenue in nature, and whether the corresponding addition could be sustained in section 153A proceedings.

Analysis: The subsidy was linked to the industrial incentive scheme under the Haryana General Sales Tax framework and was examined through the purpose test. The Tribunal had already held in the regular assessment proceedings that the subsidy was intended to encourage capital investment and was therefore a capital receipt. The same issue was only repeated in section 153A without any incriminating material. The principle of consistency also supported acceptance of the earlier treatment of the subsidy as capital in nature.

Conclusion: The sales tax subsidy was held to be a capital receipt, and the addition treating it as revenue receipt was unsustainable in favour of the assessee.

Final Conclusion: Both additions made in the section 153A assessments were deleted, as neither was supported by search material and the subsidy issue was governed by the earlier binding finding on its capital character.

Ratio Decidendi: In section 153A proceedings, additions not based on incriminating material cannot be sustained where the same issue has already been deleted on merits in regular assessment proceedings; subsidy linked to capital investment is to be treated according to its predominant purpose.

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