2024 (10) TMI 1660 - AT - Income Tax

Assessment under Section 153A invalid when based solely on statement without incriminating material from search

Deputy Commissioner of Income Tax, Central Circle-18, New Delhi Versus Sanjeev J Aeren

The ITAT Delhi held that an assessment under section 153A was invalid where additions were made solely based on the assessee's statement during search ... Validity of assessment made u/s. 153A - addition made merely on the basis of statement of appellate during the search - HELD THAT:- A perusal of assessment order reveals that the AO has made addition merely on the basis of statement of assessee. In the assessment order, the AO has not referred to any incriminating material found during the course of search. The only basis for making addition is the statement. Even before us, the ld. DR has failed to point out any incriminating material unearthed during search The transaction of sale and purchase of shares has already been recorded by the assessee in its books of account. It is not a case of Revenue that the assessee has not disclosed the transaction of sale and purchase of shares. Thus, in the absence of any incriminating material unearthed during the course of search, the addition made by AO in the year of completed assessment is unsustainable. We find no infirmity, in the order of CIT(A) in deleting the addition. Assessee appeal allowed. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Tribunal in these appeals are:Whether the Assessing Officer (AO) was justified in making additions to the income of the assessees under section 153A read with section 143(3) of the Income Tax Act, 1961 (the Act) in respect of alleged accommodation entries in the form of Long Term Capital Gains (LTCG) when no incriminating material was found during the search and seizure operation.Whether additions can be sustained in cases of completed assessments where the only basis for addition is the statement of the assessee recorded during search, without any corroborative or incriminating material discovered during the search.The validity and applicability of the principle laid down by the Hon'ble Apex Court regarding interference in completed assessments under section 153A of the Act.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Justification for additions under section 153A in absence of incriminating materialRelevant legal framework and precedents: Section 153A of the Act empowers the AO to assess or reassess income of a person in respect of whom a search or requisition has been conducted, including cases where assessments are completed. However, the Hon'ble Apex Court in PCIT vs. Abhisar Buildwell P. Ltd. has clarified that completed assessments can only be reopened under section 153A if incriminating material is unearthed during the search or requisition which was not previously disclosed or considered.Court's interpretation and reasoning: The Tribunal noted that in the present appeals, the AO made additions solely on the basis of the statement of the assessee recorded during the search. There was no reference in the assessment order to any incriminating material found during the search. The AO did not produce any documentary or tangible evidence to support the allegation of accommodation entries disguised as LTCG.Key evidence and findings: The Tribunal observed that the transactions relating to purchase and sale of shares were recorded in the books of account, executed through demat accounts and proper banking channels, and Security Transaction Tax was paid. The CIT(A) had found these facts and concluded that the addition was based on presumption and surmises.Application of law to facts: Applying the principle from the Apex Court, the Tribunal held that in the absence of any incriminating material unearthed during search, reopening of completed assessments and making additions on the basis of statements alone was impermissible.Treatment of competing arguments: The Revenue argued that the suspicious increase in share value and the statement of the assessee indicated accommodation entries. The Tribunal rejected this contention, emphasizing the lack of corroborative material and the fact that the transactions were disclosed and recorded properly.Conclusions: Additions made solely on the basis of statements without incriminating material found during search are unsustainable in completed assessments under section 153A.Issue 2: Validity of assessment under section 153A read with section 143(3) in completed assessmentsRelevant legal framework and precedents: Section 153A allows assessment or reassessment after search. However, the law mandates that for completed assessments, reopening is permissible only if undisclosed income or incriminating material is found during search. The Apex Court in PCIT vs. Abhisar Buildwell P. Ltd. clearly held that mere statements or suspicion are insufficient.Court's interpretation and reasoning: The Tribunal reiterated that the AO failed to produce any incriminating material and relied solely on the statement of the assessee. The CIT(A) rightly held that the addition was based on presumption and surmises, contrary to the spirit of law.Key evidence and findings: The Tribunal relied on the CIT(A)'s findings that the share transactions were properly documented and the Security Transaction Tax was paid, indicating disclosure and compliance.Application of law to facts: The Tribunal applied the Apex Court's principle and concluded that reopening of completed assessments without incriminating material is impermissible, rendering the additions invalid.Treatment of competing arguments: The Revenue's contention that the statement alone sufficed was rejected, as it contradicted settled legal position and lacked evidentiary support.Conclusions: The assessment order under section 153A read with section 143(3) in completed assessments without incriminating material is invalid.Issue 3: Applicability of precedent and principle of law from PCIT vs. Abhisar Buildwell P. Ltd.Relevant legal framework and precedents: The Apex Court decision in PCIT vs. Abhisar Buildwell P. Ltd. is a binding precedent that clarifies the scope and limitations of reopening completed assessments under section 153A.Court's interpretation and reasoning: The Tribunal relied heavily on this precedent, emphasizing that the AO must have some incriminating material discovered during search to justify additions in completed assessments.Key evidence and findings: No incriminating material was found during search in the present appeals; hence, the Apex Court's ruling was directly applicable.Application of law to facts: The Tribunal applied the precedent to hold that reopening and additions without incriminating material are impermissible.Treatment of competing arguments: The Revenue failed to distinguish or circumvent the binding precedent.Conclusions: The precedent governs the present appeals and mandates dismissal of Revenue's appeals.3. SIGNIFICANT HOLDINGSThe Tribunal held:'Completed assessments can be interfered with by the AO while making assessment u/s. 153A of the Act only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment.'The Tribunal further held that additions made solely on the basis of the statement of the assessee recorded during search, without any incriminating material found during search, are unsustainable in completed assessments under section 153A.Core principles established include:Section 153A cannot be used as a tool to reopen completed assessments unless incriminating material is found during search.Statements alone, without corroborative evidence or incriminating material, cannot justify additions in completed assessments.Proper disclosure of transactions in books of account, supported by payment of applicable taxes (such as Security Transaction Tax), negates the presumption of undisclosed income or accommodation entries.Final determinations on each issue were in favour of the assessees, leading to dismissal of Revenue's appeals for all four assessment years under consideration.