Section 153A assessment invalid without incriminating material seized from assessee's premises during search operation

ITAT Mumbai held that assessment under section 153A was invalid where no incriminating material was seized from the assessee's premises. The AO made additions for unexplained investments based on documents seized during search of a third party. The tribunal ruled that when incriminating material is found only from third party's premises, assessment should be under section 153C, not 153A. Since no material was seized from the assessee's own premises during subsequent search, the addition under section 69 was deleted. Appeal decided in favor of assessee.

---

---

Issues Involved:
1. Deletion of addition of unexplained investment.
2. Deletion of addition of undisclosed interest.
3. Validity of assessment proceedings under section 153A versus 153C.

Summary:

Issue 1: Deletion of Addition of Unexplained Investment

The Revenue challenged the deletion of an addition of Rs. 15,00,00,000/- as unexplained investment by the CIT(A). The Tribunal noted that the assessment for AY 2012-13 to AY 2017-18 was made under section 153A, not 153C, and no incriminating material was found during the search at the assessee's premises. The CIT(A) found no correlation between the material seized from a third party (Shri Nilesh Bharani) and the assessee. The Tribunal upheld the CIT(A)'s findings, stating that the assessment should have been framed under section 153C, not 153A, as no incriminating material was found at the assessee's premises.

Issue 2: Deletion of Addition of Undisclosed Interest

The Revenue also challenged the deletion of an addition of Rs. 2,47,38,333/- as undisclosed interest. The Tribunal noted that the AO made the addition based on assumptions and presumptions without any incriminating material. The CIT(A) found that transactions between the assessee and Shri Nilesh Bharani were through banking channels, with TDS and brokerage deducted. The Tribunal upheld the CIT(A)'s deletion of the addition, stating that no incriminating evidence was found against the assessee.

Issue 3: Validity of Assessment Proceedings under Section 153A versus 153C

The Tribunal examined whether the assessment proceedings should have been initiated under section 153A or 153C. It concluded that since the evidence relied upon by the AO was collected during a search of a third party and not the assessee, the assessment should have been framed under section 153C. The Tribunal found that the AO's assessment under section 153A was not sustainable in the absence of incriminating material found at the assessee's premises.

Conclusion:

The Tribunal dismissed the appeals filed by the Revenue for AY 2012-13 to AY 2018-19, upholding the CIT(A)'s deletion of additions under sections 69 and 56 of the Act. The cross objections filed by the assessee were also dismissed as they were filed to support the CIT(A)'s findings. The order was pronounced in the open court on 31.10.2023.

---