Unabated search assessment needs incriminating material; capital gains arise on part performance when possession and consideration pass.
In an unabated section 153C assessment, additions cannot survive unless they are founded on incriminating material found during search; material linked only to survey documents was insufficient, so the additions for assessment year 2011-12 were deleted. On capital gains, the transfer of land was treated as complete in assessment year 2011-12 when possession, consideration and part performance had taken effect under section 2(47) read with section 53A of the Transfer of Property Act, even though the formal sale deed was executed later. The later deed did not defer taxability, so capital gains were not chargeable in assessment year 2013-14.
Issues: (i) Whether additions made in the assessment under section 153C of the Income-tax Act, 1961 for assessment year 2011-12 could survive in an unabated assessment in the absence of incriminating material found during search. (ii) Whether the transfer of the impugned land was chargeable to capital gains in assessment year 2013-14 or in assessment year 2011-12 on the basis of possession and part performance.
Issue (i): Whether additions made in the assessment under section 153C of the Income-tax Act, 1961 for assessment year 2011-12 could survive in an unabated assessment in the absence of incriminating material found during search.
Analysis: The return for assessment year 2011-12 had already been filed and the assessment had not abated when notice under section 153C was issued. The additions were not shown to be based on any material found during the search itself. The material relied upon was linked to documents recovered in survey proceedings and not to incriminating evidence found in search relating to the assessee. In such an unabated assessment, additions cannot be made de hors incriminating material.
Conclusion: The additions for assessment year 2011-12 were rightly deleted and the Revenue's challenge failed.
Issue (ii): Whether the transfer of the impugned land was chargeable to capital gains in assessment year 2013-14 or in assessment year 2011-12 on the basis of possession and part performance.
Analysis: The land had been handed over and introduced into the partnership arrangement in assessment year 2011-12, and the transaction satisfied the requirements of section 2(47) read with section 53A of the Transfer of Property Act, 1882. The civil injunction delayed execution of the sale deed, but the substantive transfer had already taken place when possession and consideration passed and the firm commenced development. The later deed did not shift the year of taxability.
Conclusion: The capital gains were taxable in assessment year 2011-12 and not in assessment year 2013-14.
Final Conclusion: Both appeals by the Revenue were rejected, and the relief granted to the assessee by the first appellate authority was sustained.
Ratio Decidendi: In an unabated search assessment, additions must be founded on incriminating material found during search, and a transfer for capital gains purposes is complete when possession is given in part performance under section 2(47) read with section 53A, even if the formal sale deed is executed later.