2023 (11) TMI 443 - AT - Income Tax

Tribunal Overturns Tax Additions Due to Lack of Incriminating Evidence in Search Operations; Assessee's Appeal Upheld.

The DCIT, Central Circle-30, New Delhi Versus Nikhil Madan legal heir of Late Naveen Madan

The ITAT Delhi ruled in favor of the assessee, allowing the appeal against the Revenue's decision to make additions under Section 153A without ... Assessment u/s 153A - incriminating material unearthed during the search or not? - HELD THAT:- The entire issue stands settled in the case of M/s. Abhisar Buildwell P. Ltd.[2023 (4) TMI 1056 - SUPREME COURT] wherein held that in case no incriminating material is unearthed during the search, the AO cannot assess or reassess taking into consideration the other material in respect of completed assessments/unabated assessments. Hence, we hold that no addition can be made in the case of the assessee sans seized material. Appeal of the assessee is allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether the assessing officer may make additions in completed assessments or reassessments under the provisions invoked after a search when no incriminating material relating to the relevant assessment years is unearthed during the search/requisition. 2. Whether book entries or disclosed material already available to the revenue can form the basis for additions in completed assessments in the absence of seized incriminating material. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Power to make additions in completed assessments/reassessments following search where no incriminating material is unearthed Legal framework: The statutory scheme permits the initiating of proceedings consequent to search/requisition and contemplates assessment/reassessment for relevant assessment years; however, interference with completed assessments under such proceedings is governed by the requirement of 'incriminating material' discovered during the search or requisition. Precedent Treatment: The Tribunal followed established decisions of the Jurisdictional High Court and authoritative pronouncements of the Apex Court establishing that completed assessments can be reopened or altered in proceedings consequent to search only upon discovery of incriminating material specifically relating to those assessment years. Interpretation and reasoning: The Court reasoned that the power to reassess or to make additions in completed assessments post-search is not unfettered; it is confined to cases where the search unearthed material which was not produced or disclosed during the original assessment and which establishes undisclosed income or property for the years sought to be reopened. Absent such material, the officer cannot rely on extraneous or previously available information to disturb completed assessments. The Tribunal observed that the addition under challenge was not founded on any material seized during the search but merely on entries already in books and known to the department. Ratio vs. Obiter: Ratio - the requirement that incriminating material unearthed during search/requisition is a precondition for interfering with completed assessments under search-linked proceedings; Obiter - discussion distinguishing factual scenarios where habitual concealment may justify different treatment (not applicable on facts). Conclusions: The Court held that, in the absence of incriminating material unearthed during the search/requisition for the relevant assessment years, the assessing officer was not justified in making additions in completed assessments; such additions must be deleted. Issue 2 - Reliance on book entries or already disclosed material as basis for additions when no seized material exists Legal framework: Assessment actions consequent to search must be anchored in material discovered in the search/requisition; material already disclosed and considered in original assessments does not qualify as newly unearthed incriminating material that could sustain additions under search-linked proceedings. Precedent Treatment: The Tribunal applied the controlling line of authority from higher courts which hold that estimations or surmises based on books or prior records, without fresh incriminating material, cannot validate additions; earlier decisions distinguishing extreme cases of clandestine operations (where books cannot be relied upon) were noted but found inapplicable. Interpretation and reasoning: The Court emphasized that book entries already disclosed to the department and examined in original assessments cannot be treated as incriminating material discovered during search. The assessing officer's resort to estimates or surmises based on such entries, in the absence of any seized incriminating documents or undisclosed assets discovered during search, lacks legal basis. The Tribunal further noted that precedents permitting interference where clandestine concealment is established are fact-specific and not transferable to cases where records are orderly and previously available to the revenue. Ratio vs. Obiter: Ratio - disclosed book entries or previously available material cannot serve as the requisite incriminating material to disturb completed assessments in search-linked proceedings; Obiter - contrast with factual situations involving habitual concealment where different inferences may follow. Conclusions: The Tribunal concluded that additions founded solely on book entries already disclosed to the department must be set aside when no seized incriminating material exists; the addition in the instant matter was deleted accordingly. Cross-References and Consolidated Conclusion Both issues are interrelated: the jurisdictional precondition of incriminating material unearthed during search links directly to the inadmissibility of relying on pre-existing disclosed book entries to reopen completed assessments. Applying this principle, and following the controlling decisions of the higher courts, the Tribunal held that absent any incriminating material seized in the search, the assessing officer could not make additions; the impugned addition was therefore deleted.