Incriminating search material is required for section 153A additions in unabated assessments; penalty falls when the addition fails.

In an unabated assessment under section 153A, an addition cannot be sustained when it is based only on a base note or external information and not on incriminating material found during the search. The text states that the disputed addition failed this jurisdictional test because no search material from the assessee's premises supported it, and the addition was therefore held unsustainable. It further states that a penalty under section 271(1)(c) founded solely on that deleted addition cannot survive once the underlying assessment addition falls away, so the penalty was directed to be deleted.

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Issues: (i) Whether addition made under section 153A in respect of an unabated assessment could be sustained when it was based only on information contained in a base note and not on incriminating material found during search; (ii) whether the penalty levied under section 271(1)(c) could survive after the assessment addition was held unsustainable.

Issue (i): Whether addition made under section 153A in respect of an unabated assessment could be sustained when it was based only on information contained in a base note and not on incriminating material found during search.

Analysis: The assessment year was completed and had attained finality before the search. The addition was made solely on the basis of the base note received from external authorities and not on material found in the course of search from the assessee's possession or premises. In an unabated assessment, the scope of section 153A is confined to material found during search, and external information by itself does not constitute incriminating material found in search. Since the disputed addition did not arise from such search material, the jurisdictional challenge succeeded.

Conclusion: The addition under section 153A was not sustainable and the assessee succeeded on this issue.

Issue (ii): Whether the penalty levied under section 271(1)(c) could survive after the assessment addition was held unsustainable.

Analysis: The penalty was founded entirely on the addition made in the assessment order. Once the underlying addition was held to be bad in law and deleted, the basis for penalty disappeared. A penalty cannot survive independently where the assessment itself fails and no incriminating material was found to support the addition.

Conclusion: The penalty could not be sustained and was directed to be deleted.

Final Conclusion: The assessee succeeded on the jurisdictional challenge to the section 153A addition and, as a consequence, also on the penalty matter, while the Revenue's appeal failed.

Ratio Decidendi: In an unabated search assessment, additions under section 153A must rest on incriminating material found during the search, and penalty based solely on an unsustainable addition cannot survive.

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